The Q4 2021 TransUnion Credit Industry Insights Report (CIIR) showed signs of a return to pre-pandemic activity in the Canadian credit market. The TransUnion consumer credit health Credit Industry Indicator (CII) rose 32 points year-on-year (YoY) to 101.6 points — driven by solid credit demand and supply. While there was continued momentum as the economy recovered, disrupted credit volumes and balances created headwinds.
Chart 1: Canadian Credit Industry Indicator
Source: TransUnion Canada consumer credit database.
Q4 2021 saw a YoY rise of 1.8% in credit participation driven by above prime consumers who showed a 4.4% increase from last year. Total balance growth across all products was up 8.5%. Non-revolving products increased 3.3% due to mortgage growth (up 11%) and personal loans (up 9%). Revolving balances grew 2%, with credit card balances up 4.2% and spending up 20% YoY as the economy reopened and consumers returned to pre-pandemic spending patterns.
Table 1: Total New Accounts Opened by Product Type
Unmet demand driven by declining inventory saw Q4 mortgage originations increase 5.6% YoY — led by Gen Z consumers despite high sales prices. A small but growing part of the market (comprising mainly first-time homebuyers), this generation increased originations 30% YoY during Q4 2021. The average mortgage balance increased 10% YoY to $320,835, while average new account balances increased 19% to $386,026. Ontario and British Columbia led the way in new mortgage balances which were up 22% and 19%, respectively. Toronto’s average new mortgage limit rose 16% YoY at $580,470 and Vancouver’s 13% YoY at $691,780.
Table 2: Mortgage Originations by Generation
As home prices remained high, affordability was a concern for consumers. In TransUnion’s latest Consumer Pulse study, 44% of respondents stated high home values were a barrier to homeownership, as were insufficient funds for a down payment (42%) and the lack of stable employment (30%).
Mortgage lenders are pricing in expectation of interest rate increases which will create additional stress on consumer wallets. We don’t traditionally see this impacting mortgage delinquency (consumers prioritize mortgage payments), but payments like credit cards may take the strain.
Consumer credit card delinquency increased two bps, and personal loan consumer delinquency increased nine bps YoY — the second consecutive quarter of increases for both. Roll rates — consumers transferring through later stages of delinquency — increased 18% YoY.
Although full recovery from the impact of COVID-19 is not over, Canada has proven its ability to adapt and operate in what is now the new normal. It’s important to note while we’re in an economic recovery, not all news will be positive. Given the severity and depth of the recession, the recovery will continue to be uneven as we progress in the first quarter of 2022.
As economic activity increases, lenders need to be prepared to re-engage with consumers while also preparing for uncertainties of the future. Embracing the next phase of recovery will require a recalibrated approach to underwriting, advanced analytics to target resilient consumers, and potential investments into effective digital channels to drive sustainable growth in acquisitions and share of the consumer wallet.
For more detailed insights, download the full report. To learn more about how our data-driven market, segment and individual consumer insights can help your business grow more safely and sustainably, contact your TransUnion representative.