A rebound in the housing market in 2019 has led to an increase in mortgage lending and a decrease in homeowners borrowing against the value of their homes, according to a new report from Scotiabank.
The report said mortgage credit growth for banks grew by 6% month over month in October (up from 5.7% in September). Year over year, mortgage lending grew by 5.9% (up from 3.1% a year ago), representing the fastest expansion in lending since the end of 2017.
Scotiabank noted that the Bank of Canada’s reduction of the qualifying rate for mortgage stress tests from 5.34% to 5.19% in July “remains stimulative for lending,” and strong labour markets and wage increases have also contributed to mortgage growth.
As mortgage borrowing has increased, banks have seen fewer Canadians borrowing against the value of their homes or piling up non-mortgage debt.
Scotiabank observed that growth in home-equity line of credit (HELOC) lending was steady in October at 2.2% month over month, and year-over-year growth slowed for an eleventh straight month to 3% — the slowest pace since September 2016.
“Bank HELOC lending took off near the end of 2016 and accompanied an overall decline in housing unit sales,” the report stated, adding that “as housing markets have picked up again in 2019, Canadians have reduced their recourse to HELOCs.”
Scotiabank noted that banks’ non-mortgage consumer credit growth (excluding HELOCs) contracted month-over-month in October for the first time since early 2018, shrinking by 2.8%.
“With household debt-service ratios at record highs and residential real-estate prices rising again, Canadians may be cutting back on consumption in order to stretch to afford housing,” the report suggested.