In any major Canadian city, you’re unlikely to find people with higher average consumer debt than you will in Vancouver — even exclusive of mortgage debt in the city’s crushing housing market.
Residents of the West Coast city recorded the highest average consumer non-mortgage debt of any other major city in a release from credit reporting agency TransUnion that came out on Thursday.
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Vancouverites held an average consumer non-mortgage debt balance of $38,588 in the fourth quarter of 2017, up from $38,095 in the previous quarter and up from $36,327 year over year.
At annual growth of 6.5 per cent, that was the third-fastest rate at which average consumer non-mortgage debt grew in any major city mentioned in the report.
The only cities where it grew faster were Hamilton (7.92 per cent) and Toronto (6.83 per cent).
The numbers show that more people are using home equity lines of credit (HELOCs), in which your home acts as a guarantee that you’ll pay the money back.
More people in Vancouver have been using HELOCs as prices have skyrocketed in the city, said Matt Fabian, director of research and analysis at TransUnion.
And a number of them could be using those lines of credit to renovate the homes they already live in, he added.
“There’s going to be folks who had a home, that maybe they were only planning to live in for a few years, and that home four years ago was worth $600,000, and they had a $300,000 mortgage on it,” Fabian said.
“All of a sudden, come 2016, they now have a $1.4-million home with a $380,000 mortgage on it.”
But those same owners, he said, are now looking at a market where it will cost them as much as $1.7 million to buy an equivalent home or to upgrade, and they might not be willing to do that.
Instead of moving, they might look at the equity they’ve built up in a home and renovate it so they can stay there longer, Fabian said.
Because the more equity you have in your home, the more you can borrow on a HELOC, and many homeowners will use the money to renovate their homes and continue to live in it, instead of buying a new house.
People are also likely taking out HELOCs because they have lower interest rates than they’ll find on credit cards.
And they won’t just use one for home renovations.
They’ll also use HELOCs to buy cars, to travel or for other expenses.
“You use it in situations where you’re wanting to borrow against something at a lower interest rate,” Fabian said.
Even as Vancouverites are piling up more debt, they’re not necessarily defaulting on what they’ve borrowed.
TransUnion found that the rate at which Vancouver consumers were 90 days or more past due on their non-mortgage debt was 4.6 per cent, the second-lowest among all the major cities cited in the report.
Indeed, the delinquency rate has hovered around that level since the fourth quarter of 2016.
The highest 90-day+ delinquency rate was seen in Edmonton, where it was 7.1 per cent, followed by Halifax with 6.58 per cent and Saskatoon with 6.05 per cent.
“Delinquency’s a function of sort of how much balance you’re able to carry under times of stress,” Fabian said.
“It’s been a low interest-rate environment, I think for the most part, people are getting favourable rates on a lot of the products and so they’re able to pay off that debt.”
But a challenge comes, he said, when interest rates go up — and the Bank of Canada has raised them thrice since July.
When that happens, people start to see “pockets of payment shock” in which a larger share of disposable income goes to servicing debt.
“And all of a sudden, that proportion increases and that creates stress in other areas,” Fabian said.
“We haven’t seen that yet in Vancouver, so it feels like they’re still balancing that.”
At $361,323, British Columbians also carry the highest average mortgage balance of the provinces referenced in TransUnion’s report.
That was over the Canadian average of $256,600, and it was more than in Alberta ($293,141), Ontario ($280,013), Saskatchewan ($221,488) and Quebec ($182,239).