Alternative boom might have led to more installment loan delinquencies

Alternative boom might have led to more installment loan delinquencies

Alternative boom might have led to more installment loan delinquencies

Delinquencies in installment loans across the country grew by 14 basis points annually during Q1 2019, most likely due to a noticeably higher number of originations by alternative lenders and an increase in lending to more risky segments, according to Matt Fabian of TransUnion Canada.

This product type and other “non-revolving” offerings such as auto loans accounted for some of the largest contributions to the 7.2% growth in average balances.

Overall delinquencies shrunk by 5 basis points during the quarter to end up at 5.36%. Total credit balance grew by 4.2% to $1.85 trillion, while the share of Canadians with access to credit increased by 1.3%, reaching 28.9 million consumers.

The credit reporting firm’s latest analysis also found that Canadian HELOC originations declined by 10.6% in Q4 2018. Meanwhile, line-of-credit originations went up by 22.4% during the same time frame.

As with installment loans, these movements were heavily influenced by the tight mortgage stress tests that have helped slow down overheated home sales activity in crucial markets.

“I’m optimistic the average consumer balance is still growing but the rate of growth has slowed a lot, since even a year ago,” Fabian said in an interview with Bloomberg.

The rise of the alternative sphere has been spurred by the circuitous, restrictive policy regime introduced early last year to stem outsized home price growth.

In Ontario alone, private lenders represented approximately 12% of new mortgages last year, according to a CIBC report released in mid-April. This proportion went up from the 10% in 2017 and 8% in 2016.

This share was even larger in the GTA, at around 15% of transactions.

However, CIBC World Markets Inc. deputy chief economist Benjamin Tal warned that federal regulators should begin taking the segment’s rapid growth more seriously.

“If you have a market that’s 7% or 8% of the [mortgage] sector, I think it’s time to start looking at how we can regulate it. If it gets to 15%, you want to be able to see what’s happening in 15% of the market,” Tal stated