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‘People are hitting the wall’: Delinquency rate highest since 2012, Canadian report shows

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The percentage of Canadians who are three months or more behind on their debt payments has hit the highest since 2012, according to the most recent quarterly data from Equifax Canada.

Canada’s so-called 90+ day delinquency rate on non-mortgage payments climbed to 1.2 per cent in the final three months of 2019, an 11 per cent jump compared with the same period in 2018, Equifax data shows.

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Canadians owed an average of almost $73,000 at the end of 2019, of which nearly $24,000 is non-mortgage debt, including credit cards, loans and lines of credit.

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Delinquency rates had been “marching higher” for much of 2019 and will likely keep going up in 2020, said Bill Johnston, vice-president of data and analytics at Equifax Canada, in the report.

The trend is strongest in British Columbia, Ontario and Alberta, where delinquencies are now back above their 2016 level.

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The data comes as Canada sees rising numbers of consumers defaulting on their debts even amid a healthy economy and solid job market. Consumer insolvencies were up more than 10 per cent in January 2020 compared to the same month in 2019, according to the latest figures from the Office of the Superintendent of Bankruptcy.

That’s a trend Scott Terrio, manager of consumer insolvency for Hoyes, Michalos Licensed Insolvency Trustees, has been seeing on the ground for some time.

“People are hitting the wall.”

Interest rate hikes are likely in part responsible for the growth in delinquencies and insolvencies, Terrio said.

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The Bank of Canada implemented five interest rate increases over the span of two-and-a-half years, lifting its trend-setting rate from 0.5 per cent to 1.75 per cent between July 2017 and October 2018, before lowering it to 1.25 per cent on March 4 amid rising concerns about the economic impact of the coronavirus outbreak.

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A study by the Canadian Association of Insolvency and Restructuring Professionals found that there is usually a two-year lag between when interest rates start to rise and when consumer insolvency filings begin to increase.

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But Terrio said much of the debt he sees from clients filing for insolvency is much older than two years.

“We’ve run up debt for most of a decade,” he said.

Some borrowers are simply getting to the end of the runway, according to Terrio.

That may be especially true among renters, who, according to Terrio, made up more than 90 per cent of debtors who filed for insolvency with Hoyes Michalos over the last couple of years.

While sky-high home prices allow many homeowners in expensive cities to keep borrowing against their home equity, renters have fewer options to keep borrowing and consolidate debt.

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But while the pile of debt carried by Canadian households has been growing for the better part of a decade, what may be pushing debtors over the edge are expensive loans from online alternative lenders, an industry that’s boomed over the past few years.

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“There’s less and less more recent debt from the big banks as opposed to non-traditional and payday lenders,” Terrio said. “That’s driving people to insolvency because the interest rates on those loans are horrible.”

Still, the Equifax report noted consumer demand for non-mortgage debt has been cooling off.

“Outside of mortgages, we have seen a significant pullback in demand for credit,” Johnston noted.

Consumers, Terrio said, are “entering a period here of self-policing.”

“They’re in trouble enough that they’re not going to get more credit.”

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Homebuyers, however, are bucking that trend, with mortgage debt up 5.2 per cent in late 2019 compared to a year earlier.

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The increase reflects homebuyers having adjusted to the 2018 mortgage stress test, Equifax said.

Looking forward to the rest of 2020, Terrio said the Bank of Canada’s recent rate cut would likely fan the flames of the mortgage market.

“We’re going back into low rates again here, which for me spells danger.”