A surge in mortgage borrowing is pushing consumer debt loads higher in Canada despite falling credit card use, as households plow more money into their homes while spending less on everything else.

New mortgage borrowing rose 41 per cent in the first quarter compared to the same period in 2020, when the pandemic began, according to a release Tuesday from consumer credit reporting firm Equifax Inc. The average limit on new mortgages -- the amount for which borrowers were approved -- jumped more than 20 per cent to $326,930 (US$270,490).

The increase in the number and size of mortgages Canadians are taking out drove the country’s outstanding consumer debts to nearly $2.1 trillion (US$1.7 trillion), despite a drop in credit card balances to their lowest point in six years, Equifax said.

“Lower interest rates, multiple lockdowns and higher unemployment rates have led to changes in consumer behavior,” Rebecca Oakes, assistant vice president of advanced analytics at Equifax’s Canadian unit, said a press release accompanying the report. “Competition among home buyers is fierce in many markets across the country.”

The pandemic has helped spur a record boom in Canada’s housing market as rock-bottom interest rates and new demand for bigger living spaces has fueled bidding wars for ground-level homes. With a number of provinces going in and out of lockdown throughout the past 15 months, Canadians have also had fewer opportunities to spend on everything from restaurants to clothes to entertainment.

A higher savings rate, combined with emergency income support from the government, has played into the housing boom while also helping consumers pay down their credit card debts.

Delinquencies Drop

Excluding mortgages, the size of the average consumer’s debt in Canada fell 4.2 per cent in the first quarter from the year before, to $20,430, while non-mortgage delinquencies dropped 22 per cent in the same period, Equifax data show.

Mortgage delinquencies are themselves at an all-time low, though one notable exception is Canada’s most expensive housing market, Vancouver, which in the first quarter saw a 14.6 per cent increase in the rate of delinquencies 90 days or longer.

Signs are starting to emerge that the housing market is slowing after hitting a peak in March, though activity still remains well above historic norms. A stricter government stress test for mortgages, which came into force this month, will reduce the size of the loans borrowers can take. Meanwhile, rising rates of vaccination and an easing of COVID-19 restrictions may also change the way consumers spend.

“Successful vaccine rollouts will be the critical factor in opening up the economy, which will have a big impact on consumer spending and debt management,” Oakes said in the statement. “Canadians should be preparing themselves for a point in time, which will likely come in this calendar year, when governments begin to rein in support mechanisms.”