Finance

Growing real estate value is fueling HELOC debt binge in Canada, says National Bank

By: Dominic Licorish on August 11, 2017
Article image

Canadian homeowners are racking up debt at a record pace, says a new report from National Bank that looks at how home equity lines of credit (HELOCs) are driving the surge in consumer credit.

According to National Bank’s report, the value of home equity lines of credit in Canada have skyrocketed by almost $20 billion in the last year — accounting for nearly 60% of the growth in total consumer credit this year.

Financial Consumer Agency of Canada (FCAC) data says there are three million active HELOCs in the country, with an average outstanding balance of $70,000. The current combination of low interest rates and overheated housing prices in B.C. and Ontario allow slightly more established homeowners to boost their spending power. However, the high debt load is somewhat of a concern as interest rates have begun to rise.

FCAC data says there are three million active HELOCs in the country, with an average outstanding balance of $70,000

HELOCs have also become much more popular in the last year, rising to almost 46% of consumer credit. The last time we saw a surge in HELOCs was a decade ago, right before the economic downturn in 2008.

Canadians may be some of the most indebted people in the world, but despite that, Canadians have done well to service that debt, especially when it comes to mortgages. It follows then that despite rising debt and interest rates, people will continue to make their payments and keep the Canadian credit market healthy.

On the other hand, with interest rates rising, we’ll find out pretty soon if Canadians have bitten off more debt than they can chew.