Daydreaming young couple at home

Household credit growth slowed in November, putting the brakes on an upward trend observed earlier in 2019.

Total household credit decelerated to 3.7% month over month (seasonally adjusted and annualized) in November, said Scotiabank in a report released on Monday. That figure compares to October’s two-year high in total borrowing of 5.3%, the report said, when mortgage growth hit its fastest pace in three years.

Despite November’s slower rise in household credit, year-on-year trend growth of 3.9% was unchanged from October, the report said.

Monthly mortgage growth slows, but housing market is strong

November’s deceleration in credit growth was led by a slowing in mortgage borrowing (from 7.3% to 4.7% month over month) and a continued decline in consumer credit growth.

Still, mortgage credit growth remained on an upward trend for the seventh month in a row, and the housing market showed no signs of cooling.

“Though five-year mortgage rates were on hold in late 2019, they remained relatively low compared with earlier in the year, and Canadians continued to take advantage of favourable borrowing conditions,” the report said.

Consumer credit growth has been mostly on a downward trend since mid-2017, consistent with a broader decline in consumption growth, even though the average interest rate charged on consumer loans fell by about 50 basis points during the year.

“Rising household expenses and high debt levels may be outweighing strong wage growth in household-finance decisions,” the report said.

Evidence of increased interest in reverse mortgages

A household-finance decision that more Canadians may be considering is a reverse mortgage.

In a release on Tuesday, HomeEquity Bank, the largest Canadian provider of reverse mortgages, said it originated $820 million in new reverse mortgages in 2019, “marking a record year” for the Schedule 1 bank. It now administers a portfolio of about $4 billion in reverse mortgage loans, the release said.

The release also noted that in December 2019, the bank sold $75 million of its portfolio of loans to another bank — the first such sale for HomeEquity and the first such transaction in Canada to involve reverse mortgages.

The company attributed growing interest in reverse mortgages to demographics and economics.

“The number of Canadians aged 55 and over continues to increase,” the release said. “Many in this cohort have not saved enough money to finance their desired lifestyle in retirement and also face workplace pension shortfalls.”

The bank expects its 2019 results to continue this year.

“We’re anticipating a very strong 2020, as interest and demand for reverse mortgages continues to grow,” said Steven Ranson, president and chief executive officer at HomeEquity Bank, in the release.