Pattie Lovett-Reid: Seniors taking on more debt as mortgage loans surge
There is an alarming statistic highlighted in a new survey by consumer credit reporting agency TransUnion.
In its second quarter report, TransUnion found that overall mortgage loans declined 3.4 per cent year-over-year, with mortgages taken by Generation Z (aged 18 to 23) and Millennials (aged 24 to 38) falling 22 per cent and 18 per cent, respectively. But what was the most alarming part of this report? Mortgage originations for the Pre-War and Silent Generation (aged 73 to 93) grew significantly at 63 per cent, year-over-year.
In a perfect world, Canadians who are in or nearing retirement should be debt free. But it would appear Canadians are re-mortgaging or borrowing against the equity in their homes to either support themselves in retirement or to support young family members. The concern is if your whole pension is tied up with just trying to make ends meet, adding debt re-payments can be the catalyst that tips a senior into bankruptcy. And don’t forget, emergencies happen – and a situation like having to repair a roof or a car breaking down can make things even worse. This kind of behaviour means many seniors are living too close to the margin.
Another potential reason seniors are taking on more debt – similar to Canadians of other demographics – is of course, low interest rates. However, the ability to go out to earn an income stream to repay this debt is limited.
To be fair, the TransUnion report isn’t full of bad news. While debt levels continue to rise, they are climbing at a much slower pace – indicating that the Canadian consumer is alive and well, and handling their credit quite well. The rate of serious delinquencies (the percentage of credit cards 90 days or more past due) remains at controlled levels, dropping three basis points year-over-year to 2.37 per cent. So while we continue to open new credit cards, we are handling our debt obligations very well, the TransUnion report shows.
Not surprisingly, mortgage volumes declined 3.4 per cent year-over-year in the second quarter. This may mean that the new mortgage rules are affecting consumers who either no longer qualify, are unable to get the amount of mortgage they want or are simply waiting to see how the market reacts to the new housing rules. All of the above are prudent financial strategies and the intended consequences of the new rules.
Here are some other key findings from TransUnion’s report:
-Credit card use increased, yet overall delinquency rates on non-mortgage loans decreased 24 basis points to 5.44 per cent from the previous year
-The average non-mortgage debt balance increased 3.9 per cent over last year to $29,648
-The number of credit cards issued increased 5.6 per cent with the average balance up 3.5 per cent to $4,200