|Ongoing angst over the high level of household debt in Canada is likely to get worse before it gets better.
Figures released by the Office of the Supervisor of Financial Institutions indicate Canadians are borrowing against their homes at the fastest rate since 2012. OSFI tracks a category with the cumbersome title of: non-mortgage loans to individuals for non-business purposes, secured by residential properties. This includes lines of credit, which have turned out to be the preferred method of accessing money. Lines of credit grew by 7.2% at the end of last year, hitting $230 billion.
A report by the Financial Consumer Agency of Canada says the bulk of this equity-based borrowing is used for home renovations, debt consolidation and investing. But there are growing concerns that more and more average Canadians are using the equity in their homes to turn themselves into banks. They are using a low-interest HELOC to provide subprime loans, at a higher rate, and pocketing the difference.
This is a circumstance that is very likely to grow. Tougher federal mortgage regulation – ostensibly to reduce taxpayer exposure to the risk of defaults – has already seen a bump in the number of borrowers moving to, so-called, shadow lenders where rates run as high as 12%. This group is not federally regulated and tends to fall into gaps between other regulatory bodies, leading to questions about loan underwriting practices and the potential for a different form of risk to the stability and security of the financial system.
Mortgage Commentary provided by:
Anthony Spadafora, Mortgage Broker
Mountainview Mortgage www.mountainviewmortgage.ca
5038 Fairview Street
Burlington, Ontario L7L 0B4