Bank’s CEO Richard Waugh was telling finance minister Jim Flaherty
to mind his own business over mortgages, he also broadly hinted his bank was prepared to expand its unsecured lending – a move one broker sees as counterproductive.
“My firm belief is that any personal financial crisis for Canadians is due primarily to unsecured debt such as credit cards and lines-of-credit; not mortgage debt,” says Karen Gibbard a senior mortgage consultant with Verico
Gibbard Group Financial in North Vancouver. “I believe the banks and the finance minister are missing where the real potential problem lies – they need to review the TDSR (total debt service ratio) for credit card debt and make sure clients can actually qualify for ALL of the credit they are seeking; not just focus on the mortgage market.”
Scotia’s CEO Waugh, who is also vice chair of the Institute of International Finance, told the Financial Post earlier this week that the unsecured credit card and personal loan portfolio “has behaved better than we thought,” giving the bank “an opportunity to expand what we call our risk appetite and take more of a prudent risk on our unsecured credit.”
Credit card debt and runaway lines of credit have been cited in a number of studies and surveys as hindering the entrance of first-time buyers into the market.
“Any client who has approached our office with financial difficulties has never said that the mortgage was the problem. It was always the amount of credit card and unsecured debt that was crippling them,” says Gibbard. “One client’s credit card had a whopping 21 per cent rate. For every $1,000 in payment he made, about $180 was put towards paying down the debt and he simply couldn’t get himself out of the hole.”
Although Gibbard is concerned as to how runaway unsecured debt is crippling her clients’ ability to obtain mortgages, she does understand Scotia’s need to increase such loans – and would prefer to see access to all forms of funding increase across the board.
“As a mortgage broker I see any access to credit as a positive for our industry,” she told MortgageBrokerNews.ca. “We work with clients who occasionally require unsecured funds for a deposit on their home or to form part of their down payment; so if Scotia wants to be aggressive in this category, I can see us taking advantage of the offer.”