Gen Z borrowers are becoming a bigger force in the mortgage market

As the Canadian housing market hit new frenzied highs during 2021, it’s no surprise that the number of new mortgages taken out has also increased – but what’s perhaps surprising is that the Gen Z age group (those born between 1995 and present) consistently make up a larger share of these borrowers.

the TransUnion’s Credit Industry Report for the fourth quarter of 2021 (CIIR) reveals that in the third quarter of 2021, the number of mortgages increased by 5.6% year-over-year, with the proportion of Gen Z mortgage borrowers jumping by 30%, surpassing broadly any other age group. While still only a fraction of the overall mortgage market at 4% (compared to 43% for Millennials and 37% for Gen Xers), it’s an interesting development given the erosion housing affordability in markets across the country. Overall, mortgage balances rose 11%, reflecting strong price growth, the report found.

According to TransUnion, as home prices soared during the fourth quarter, fueled by cheap borrowing rates and tight inventory, the average personal mortgage balance rose 10% year over year. other, to reach $320,835. This was particularly the case in Ontario and British Columbia, where sales increased by 22% and 19%, respectively.

Not surprisingly, this has been concentrated in the most expensive urban centres: the average Torontonian who took out a home loan last quarter now has a 16% higher mortgage charge, at $580,470, while Vancouverites have a mortgage balance of nearly $700,000, up 13% to $691,780. Additional consumer research from TransUnion’s Consumer Pulse survey shows that rising home prices are a barrier to homeownership for 44% of respondents.

Canadians have been more successful in paying off their debts during the pandemic

Despite taking on much larger mortgage debt, consumers were generally more successful in servicing their overall debt as the level of delinquencies has been lower than expected for several quarters.

Credit card delinquencies (defined as being 90 days or more overdue on at least one credit card) increased by two basis points (bps), while personal loan delinquencies (60 days overdue on at least one installment loan) increased by 9 bps in Q4. Although this is the second straight quarter of increases, TransUnion says it’s a sign of recovery and a growing economy as consumers return to pre-pandemic credit behaviors.

Rising rates will affect Canadians’ ability to pay

Of course, the cost of borrowing is now officially on the rise: the Bank of Canada announced its first rate hike since 2018, to 0.5%, this morning. Consumer lenders have already started shifting the highest benchmark to their prime rates and, by extension, their variable rate products. As a result, variable mortgage holders and those with lines of credit will see their payments increase, or less of their monthly payments will be allocated to their principal debt.

READ: More than half of Canadians can’t pay their bills as inflation soars

Matt Fabian, director of financial services research and advisory at TransUnion, says rising interest rates will indeed lead to a regression to pre-pandemic delinquency levels, although they should remain at manageable levels. in the foreseeable future.

“Mortgage lenders are now considering interest rate hikes, which could raise rates for variable rate holders in Canada, and this increased cost of debt could put additional pressure on consumers’ wallets,” says -he. “Based on TransUnion’s previous research on the hierarchy of payments, we don’t believe this has traditionally impacted mortgage delinquencies, as consumers prioritize mortgage payments, but other payments like credit cards. can have an impact when consumers manage the allocation of disposable income to cover debt.”

It’s good news that Canadians should continue to be cautious with their payments, as the data also reveals that overall credit appetite has indeed rebounded to pre-pandemic levels, with the indicator TransUnion’s Credit Industry Index (a measure based on demand, supply, consumer behavior and performance) rising 32 points year-over-year to 101.6. Growth in the total balance of all credit products increased by 8.5%, mainly due to non-revolving debt types, which include mortgages and installment loans. Types of revolving debt, which includes credit cards, rose 2% as overall credit card spending rates rose 20% year-over-year as the economy reopened.

According to Fabian, “Canadian consumers have shown resilience, with increased savings aided by government and lender relief programs, and the credit market has remained stable throughout the pandemic.”