HELOC share of total Canadian credit expands significantly

by Ephraim Vecina26 Feb 2019

A slower real estate market is not proving to be a deterrent for Canadian home owners borrowing against their assets, with the nation’s HELOC volume as of October 31 accounting for 11.3% (or $243 billion) of total Canadian household credit.

In its analysis released last week, rating company DBRS said that HELOCs have experienced a faster pace of growth compared to residential mortgages since 2017 – a trend that has introduced significant financial system risks.

“In the event of a correction, borrowers could find themselves with a debt load that exceeds the value of their home, which is often referred to as negative equity,” DBRS stated, as quoted by Bloomberg.

Toronto-Dominion Bank is considered one of the most at-risk institutions, with a 39% exposure to HELOC-induced risks. Royal Bank of Canada has an 18% exposure, while other major lenders averaged around 11%.

Read more: Borrowing among Canadian seniors accelerates further

January 2019 home sales numbers nationwide saw a 4% annual shrinkage, following the 2.4% annual decline during the same month last year.

Industry observers warned that these are major indicators that the current regulatory regime governing mortgages has become too severe.

“The decline in last month above and beyond what was observed a year ago is indicative of the fact that the markets are not merely reacting to new regulations, but the markets have embraced a more systematic response that is characterized by fewer transactions and lower prices,” Ryerson University associate professor Murtaza Haider and real estate industry veteran Stephen Moranis wrote in a recent piece for the Financial Post.


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