TransUnion’s Industry Insights Report (IIR) for Q2 2018 found that Canadian consumer credit performance remains strong overall. In an environment of rising interest rates and revised lending rules, credit obligations have continued to increase, but serious delinquency rates have been dropping: a sign of a healthy credit consumer market.
Consumers and lenders are responding to changes in the mortgage lending environment, as evidenced by the downward trend in mortgage originations for all but the oldest segment of the population.
Impact of mortgage rules on consumers starting to show
In our Q1 2018 blog, we noted that the slowdown in mortgage originations could imply that consumers were waiting to see how the new stress test system would affect property prices and the overall market.
The figures from our latest report (Q2 2018) suggest that these new mortgage rules may indeed be having an impact on consumers. The downward trend in mortgage originations has continued across Canada, with a 3.4% decrease in the number of new mortgages issued between Q1 2017 and Q1 2018. It could be that consumers are no longer able to qualify for a loan or can’t get a loan of the value they want. Some may still be in ‘wait-and-see’ mode.
Last quarter we saw a significant difference in mortgage balances among consumers at different life stages: up for the Pre-war/Silent generation (aged between 73 and 93) but down quite significantly for Millennials (aged 23 to 38). These variations persist when it comes to mortgage originations, too.
Mortgage Originations YoY Change, By Generation
Among the older generation, the number of mortgages issued has increased by 63% year-over-year. For Baby Boomers (aged 54 to 72), that figure is 18%. As we mentioned in our previous blog, this could be an indication that older generation Canadians are supporting younger family members, or their retirement, by re-mortgaging or borrowing against the equity of their homes.
The biggest decline in mortgage originations was among the younger generations, with a year-over-year decline of more than 22% among Gen Z (aged 18 to 23) and 19% among Millennials.
Lenders may also be adjusting to new requirements
Slicing the data a different way, the table below shows there was a decline in mortgage origination for consumers in all but the super-prime risk tier, and most significantly in the below-prime tiers.
YoY Percent Changes in Originations by Risk Tier.
These figures may well be the result of lenders focusing on lower-risk borrowers in response to the new risk exposure in the mortgage market.