Gimme Shelter: Real estate reality check

June 27, 2019 8:51 pm

Home equity loans were meant as a lifeline. Could they leave some B.C. homeowners drowning in debt?

WATCH: As real estate values fluctuate, home equity loans are riskier than ever. Sarah MacDonald has part four of our housing series.

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This is Part 4 in a five-part series on the state of real estate in Metro Vancouver. You can find the first three parts of the series here

You’ve likely heard of home equity loans. You may have one yourself.

For many Canadians, home-equity lines of credit (HELOC), which typically come with low interest rates, flexible repayments and very high credit limits, have long been the borrowing tool of choice for home renovations and debt consolidation.

Such loans can be useful but they can also be risky, especially in a fluctuating real estate market like Metro Vancouver.

Real Estate Reality Check Part 1: Taking the temperature of Metro Vancouver’s real estate market

“We have seen a lot of clients who have come in who’ve used the equity in their homes,” Greg Norris of the Credit Counselling Society said.

“With prices going down on homes, we’ve found that clients are having less access to less equity in their homes, [which] means that they have to start making changes and they have to start paying off their debts.”

Industry experts say HELOCs have been a factor in the financial difficulties of an increasing number of homeowners, with some borrowing to their limit and bringing themselves to the brink of bankruptcy.

Real Estate Reality Check Part 2: Factors cooling Metro Vancouver’s real estate market


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“The worst case scenario is that you have to sell that house to be able to pay off those debts,” Norris said.

Around three million Canadians are saddled with HELOCs at an average debt load of $65,000, according to a report from the Financial Consumer Agency of Canada (FCAC), which also estimated the combined debt load carried by Canadians for home equity loans at more than $300 billion.

A quarter of HELOC holders carry a six-figure balance, that report from January said.

In April, the Office of the Superintendent of Financial Institutions reported the country’s combined HELOC debt load exceeding $3 billion for the first time for that month, a nearly eight per cent increase year over year.

WATCH: First-time buyers looking to capitalize on cooling Metro Vancouver real estate market

Forty-one per cent of homeowners between the ages of 25 and 34 are making interest-only payments, according to the FCAC.

Linda Paul, a licensed insolvency trustee with MNP, says about 25 per cent of those with a HELOC do not have a proper plan, meaning their timeline for paying off their debt ranges from “five years to never.”

HELOCs are also a variable rate product, meaning they can be affected by rising interest rates.

READ MORE: Lynda Steele: I own a condo in Vancouver and I’m a DINK

Tom Davidoff, an assistant professor at the University of British Columbia’s Sauder School of Business, notes that no one “can say with much confidence where prices are going to be a year to five years from now,” noting a 10 to 20 per cent correction in Metro Vancouver’s real estate market is not out of the question.

It’s an environment that has financial experts and economists advising caution when it comes to borrowing from Peter to pay Paul.

On Friday, Global News Radio 980 CKNW will host a live special dedicated to examining B.C.’s housing crisis. The four-hour-long show, Gimme Shelter: A CKNW Housing Special, will take an in-depth look at the current state of affairs and the proposed strategies intended to assist those struggling the most.

— With files from Erica Alini

© 2019 Global News, a division of Corus Entertainment Inc.

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