Canada is facing a debt delinquency spike warns TransUnion
“Elevated unemployment and its effect on consumers’ income and ability to pay debt obligations is a primary driver of increased delinquency,” said Matt Fabian, director of financial services research and consulting at TransUnion. “The various government relief benefits, combined with deferral programs provided by lenders, can act to offset some of the COVID-related delinquency. However, each of these measures may contribute to long-term risk at a future time, as consumers will generally still be responsible for paying these deferred obligations at some point in the future.”
The data reveals that many Canadians were already concerned about their debt levels during the second half of 2019 and into the first few months of 2020.
They were taking steps to cut their exposure with average overall consumer non-mortgage debt balances relatively stable in Q1 2020, dropping 1.3% from a year earlier to $29.6K and nearing a two-year low.
“Consumers may have been feeling the pressure of higher credit balances and increased interest rates and so were beginning to deleverage and pay down debts. However, some were unable to do this, which can explain in part the higher delinquency rates we saw for Q1. We do not anticipate non-mortgage balances remaining stable in the coming months due to the COVID-19 pandemic,” said Fabian.
However, TransUnion is expecting the delinquency rate to begin to ease as 2020 ends with the rate falling to 6% by the end of the first quarter of 2021.