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Canadians Using Real Estate For Personal Loans Accelerates For A 5th Month

Canadians took a break from borrowing home equity, but are back in full force.

Office of the Superintendent of Financial Institutions (OSFI) filings show home equity borrowing reached a new record high in November.

The month was also the fifth consecutive we’ve seen acceleration of growth in this segment.

Loans Secured By Residential Real Estate
Regular readers can skip this, but for new readers – here’s a quick explanation.

Loans secured by residential real estate are when borrowers use their home equity to secure a loan.

The most common form of these loans are home equity lines of credit (HELOCs), but there are a few other similar loans. By pledging home equity, they can borrow at a lower rate than an unsecured borrower. They can also often skip those pesky income checks that make sure you can pay the loan back. These loans fall under two categories – personal or business.

Both loans are done in similar fashions, but they mean different things. Personal loans are generally for consumption, and are used for non-productive reasons. Canadian banks advertise these as a “convenient way to buy a second property”, or finance a vacation. Not the worst way to spend it, but it’s a non-productive pillaging of home equity. That can become a problem when you’re borrowing at peak prices.

A business loan secured by residential real estate is typically for productive reasons. A borrower is pledging their home equity for access to business capital. Since people borrow to expand their business, this is considered a positive sign. These borrowers are not just borrowing to make a productive investment. They’re also demonstrating that they’re confident enough in the economy to expand at this time. We want to see growth here.

Canadians Borrowed Over $296 Billion Of Home Equity

Canadian households set a new record for borrowing home equity. Bank filings show households owe over $296.2 billion in November, up 0.7% from the month before. This represents a 4.72% increase compared to the same month last year. It’s also the fifth consecutive month we’ve seen this number grow. Let’s break it down to see where this growth is coming from.

Total Loans Secured With Residential Real Estate

The total of personal and business loans, secured with residential real estate.

Canadian Dollars (x1000)Jan 2012Apr 2012Jul 2012Oct 2012Jan 2013Apr 2013Jul 2013Oct 2013Jan 2014Apr 2014Jul 2014Oct 2014Jan 2015Apr 2015Jul 2015Oct 2015Jan 2016Apr 2016Jul 2016Oct 2016Jan 2017Apr 2017Jul 2017Oct 2017Jan 2018Apr 2018Jul 2018Oct 2018$220,000,000$230,000,000$240,000,000$250,000,000$260,000,000$270,000,000$280,000,000$290,000,000$300,000,000Canadian Dollars (x1,000)

Month Canadian Dollars (x1000)
Jan 2012 230,290,890
Feb 2012 229,298,638
Mar 2012 241,436,349
Apr 2012 231,917,053
May 2012 234,146,682
Jun 2012 236,376,315
Jul 2012 236,695,957
Aug 2012 237,563,598
Sep 2012 239,671,791
Oct 2012 240,644,082
Nov 2012 240,320,176
Dec 2012 240,535,868
Jan 2013 235,661,227
Feb 2013 237,261,584
Mar 2013 236,904,576
Apr 2013 238,121,821
May 2013 238,252,078
Jun 2013 238,676,254
Jul 2013 237,025,810
Aug 2013 237,514,648
Sep 2013 237,075,430
Oct 2013 237,687,429
Nov 2013 237,824,397
Dec 2013 237,625,886
Jan 2014 238,749,120
Feb 2014 238,809,070
Mar 2014 237,435,869
Apr 2014 237,904,314
May 2014 238,967,201
Jun 2014 239,338,148
Jul 2014 240,341,404
Aug 2014 240,380,379
Sep 2014 241,301,225
Oct 2014 241,502,082
Nov 2014 241,355,239
Dec 2014 243,542,363
Jan 2015 245,053,319
Feb 2015 247,667,606
Mar 2015 248,260,731
Apr 2015 246,720,406
May 2015 247,902,391
Jun 2015 250,209,405
Jul 2015 250,689,534
Aug 2015 249,937,546
Sep 2015 251,058,890
Oct 2015 249,746,488
Nov 2015 251,647,201
Dec 2015 251,299,652
Jan 2016 250,067,870
Feb 2016 249,819,472
Mar 2016 249,197,862
Apr 2016 248,110,917
May 2016 250,267,206
Jun 2016 251,260,178
Jul 2016 252,411,245
Aug 2016 253,712,679
Sep 2016 254,399,817
Oct 2016 258,188,335
Nov 2016 258,760,009
Dec 2016 258,482,956
Jan 2017 260,801,576
Feb 2017 263,150,776
Mar 2017 264,216,039
Apr 2017 267,310,353
May 2017 270,136,921
Jun 2017 281,650,605
Jul 2017 282,400,226
Aug 2017 278,667,563
Sep 2017 279,640,911
Oct 2017 281,494,451
Nov 2017 282,888,641
Dec 2017 282,474,228
Jan 2018 281,466,406
Feb 2018 283,650,747
Mar 2018 284,644,859
Apr 2018 279,778,316
May 2018 284,850,448
Jun 2018 286,816,971
Jul 2018 289,689,685
Aug 2018 290,986,616
Sep 2018 292,305,630
Oct 2018 294,163,611
Nov 2018 296,245,818

Source: Regulatory Filings, Better Dwelling.

Canadians Secured $266 Billion Of Personal Loans With Home Equity

Personal loans represented the vast majority of debt secured by home equity. Banks held $266.4 billion in November, up 0.63% from the month before. This represents a 6.42% increase compared to the same month last year. In addition, this is also the fifth consecutive month the annual pace of growth has accelerated. Households are increasingly turning to home equity to fuel personal loans once again.

Personal Loans Secured With Residential Real Estate

The total of personal loans, secured with residential real estate.

Canadian Dollars (x 1000)Jan 2012Apr 2012Jul 2012Oct 2012Jan 2013Apr 2013Jul 2013Oct 2013Jan 2014Apr 2014Jul 2014Oct 2014Jan 2015Apr 2015Jul 2015Oct 2015Jan 2016Apr 2016Jul 2016Oct 2016Jan 2017Apr 2017Jul 2017Oct 2017Jan 2018Apr 2018Jul 2018Oct 2018$210,000,000$220,000,000$230,000,000$240,000,000$250,000,000$260,000,000$270,000,000Canadian Dollars (x1,000)

Month Canadian Dollars (x 1000)
Jan 2012 218,320,917
Feb 2012 218,874,898
Mar 2012 219,504,070
Apr 2012 220,618,841
May 2012 222,426,851
Jun 2012 224,055,224
Jul 2012 224,517,295
Aug 2012 225,291,172
Sep 2012 226,040,631
Oct 2012 226,953,927
Nov 2012 226,413,109
Dec 2012 226,161,532
Jan 2013 223,089,352
Feb 2013 223,916,917
Mar 2013 223,299,722
Apr 2013 223,359,858
May 2013 223,583,164
Jun 2013 223,885,121
Jul 2013 222,432,987
Aug 2013 222,764,741
Sep 2013 222,116,061
Oct 2013 222,269,792
Nov 2013 222,372,947
Dec 2013 222,269,742
Jan 2014 222,546,354
Feb 2014 223,012,322
Mar 2014 222,853,218
Apr 2014 223,415,558
May 2014 223,220,658
Jun 2014 223,379,718
Jul 2014 224,065,710
Aug 2014 223,820,704
Sep 2014 224,764,273
Oct 2014 224,867,829
Nov 2014 225,117,734
Dec 2014 226,083,063
Jan 2015 227,700,169
Feb 2015 227,906,330
Mar 2015 228,264,960
Apr 2015 226,907,682
May 2015 228,037,515
Jun 2015 228,658,918
Jul 2015 229,323,549
Aug 2015 228,885,889
Sep 2015 229,965,746
Oct 2015 228,990,556
Nov 2015 230,480,279
Dec 2015 230,446,451
Jan 2016 229,492,873
Feb 2016 229,250,901
Mar 2016 228,493,353
Apr 2016 228,443,333
May 2016 230,215,161
Jun 2016 231,585,557
Jul 2016 232,364,562
Aug 2016 232,825,326
Sep 2016 233,495,729
Oct 2016 234,808,679
Nov 2016 235,298,203
Dec 2016 235,049,538
Jan 2017 234,034,890
Feb 2017 235,550,583
Mar 2017 236,747,773
Apr 2017 239,226,402
May 2017 241,759,829
Jun 2017 245,414,119
Jul 2017 246,568,721
Aug 2017 247,075,861
Sep 2017 247,953,663
Oct 2017 249,493,064
Nov 2017 250,370,543
Dec 2017 250,185,494
Jan 2018 249,733,976
Feb 2018 251,645,705
Mar 2018 252,150,974
Apr 2018 254,750,267
May 2018 256,802,535
Jun 2018 258,972,485
Jul 2018 260,853,190
Aug 2018 262,059,422
Sep 2018 263,308,319
Oct 2018 264,761,095
Nov 2018 266,439,014

Source: Regulatory Filings, Better Dwelling.

Canadians Secured $29 Billion Of Business Loans With Home Equity

The balance of business loans secured with home equity is falling. Banks held $29.8 billion in November, up 1.37% from the month before. This represents an 8.34% decline compared to the same month last year. It’s also the 8th month in a row that we’ve seen this number showing negative annual growth. Why wouldn’t the credit segment we want to see expand, shrink right here?

Business Loans Secured With Residential Real Estate

The total of business loans, secured with residential real estate.

Canadian Dollars (x 1,000)Jan 2012Apr 2012Jul 2012Oct 2012Jan 2013Apr 2013Jul 2013Oct 2013Jan 2014Apr 2014Jul 2014Oct 2014Jan 2015Apr 2015Jul 2015Oct 2015Jan 2016Apr 2016Jul 2016Oct 2016Jan 2017Apr 2017Jul 2017Oct 2017Jan 2018Apr 2018Jul 2018Oct 2018$10,000,000$15,000,000$20,000,000$25,000,000$30,000,000$35,000,000$40,000,000Canadian Dollars (x1,000)

Month Canadian Dollars (x 1,000)
Jan 2012 11,969,973
Feb 2012 10,423,740
Mar 2012 21,932,279
Apr 2012 11,298,212
May 2012 11,719,831
Jun 2012 12,321,091
Jul 2012 12,178,662
Aug 2012 12,272,426
Sep 2012 13,631,160
Oct 2012 13,690,155
Nov 2012 13,907,067
Dec 2012 14,374,336
Jan 2013 12,571,875
Feb 2013 13,344,667
Mar 2013 13,604,854
Apr 2013 14,761,963
May 2013 14,668,914
Jun 2013 14,791,133
Jul 2013 14,592,823
Aug 2013 14,749,907
Sep 2013 14,959,369
Oct 2013 15,417,637
Nov 2013 15,451,450
Dec 2013 15,356,144
Jan 2014 16,202,766
Feb 2014 15,796,748
Mar 2014 14,582,651
Apr 2014 14,488,756
May 2014 15,746,543
Jun 2014 15,958,430
Jul 2014 16,275,694
Aug 2014 16,559,675
Sep 2014 16,536,952
Oct 2014 16,634,253
Nov 2014 16,237,505
Dec 2014 17,459,300
Jan 2015 17,353,150
Feb 2015 19,761,276
Mar 2015 19,995,771
Apr 2015 19,812,724
May 2015 19,864,876
Jun 2015 21,550,487
Jul 2015 21,365,985
Aug 2015 21,051,657
Sep 2015 21,093,144
Oct 2015 20,755,932
Nov 2015 21,166,922
Dec 2015 20,853,201
Jan 2016 20,574,997
Feb 2016 20,568,571
Mar 2016 20,704,509
Apr 2016 19,667,584
May 2016 20,052,045
Jun 2016 19,674,621
Jul 2016 20,046,683
Aug 2016 20,887,353
Sep 2016 20,904,088
Oct 2016 23,379,656
Nov 2016 23,461,806
Dec 2016 23,433,418
Jan 2017 26,766,686
Feb 2017 27,600,193
Mar 2017 27,468,266
Apr 2017 28,083,951
May 2017 28,377,092
Jun 2017 36,236,486
Jul 2017 35,831,505
Aug 2017 31,591,702
Sep 2017 31,687,248
Oct 2017 32,001,387
Nov 2017 32,518,098
Dec 2017 32,288,734
Jan 2018 31,732,430
Feb 2018 32,005,042
Mar 2018 32,493,885
Apr 2018 25,028,049
May 2018 28,047,913
Jun 2018 27,844,486
Jul 2018 28,836,495
Aug 2018 28,927,194
Sep 2018 28,997,311
Oct 2018 29,402,516
Nov 2018 29,806,804

Source: Regulatory Filings, Better Dwelling.

Canadians printed a new record for debt secured by residential real estate. Many lenders and regulators likely didn’t think much of the issue as prices made record gains. However, we’ve officially entered an era where home prices are growing at a slower pace than the equity being extracted. That means without a price drop, home equity is disappearing faster than it’s being built.

 

Article Reference: www.betterdwelling.com

 

 

 

 

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