Monitoring payment deferrals during the COVID-19 pandemic

Introduction

Since the start of the COVID‑19 pandemic, Canada’s financial institutions have allowed households to defer payments on a range of loans. Alongside government support programs, these payment deferrals have played an important role in helping households manage pandemic-related disruptions to their incomes. At the same time, the large take-up of payment deferrals has raised concerns that household defaults could spike once the deferral period ends.

In the following series of charts, we investigate what payment deferrals tell us about the financial health of households and the related risks to financial stability. We draw mainly on credit bureau microdata from TransUnion Canada. While our results are encouraging, it is still too early to reach any definitive conclusions because many deferrals remain active or have ended only recently. We plan to publish periodic updates to this analysis throughout the remainder of the pandemic.

Chartbook: Payment deferrals in Canada

Deferral rates are highest for mortgages. In total, around 16 percent of mortgages in Canada have been deferred since the start of the pandemic. As of September 2020, deferral rates have fallen significantly below peak levels, although many loans remain in deferral (Chart 1).

Chart 1: Deferral rates by loan type

Note: HELOCs are home equity lines of credit.
Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020

Energy-intensive regions, where households were already grappling with the effects of low commodity prices, account for a disproportionate share of borrowers deferring payments (Chart 2).

Chart 2: Distribution of borrowers across regions

Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020

Many households are deferring payments for reasons unrelated to the pandemic. For instance, about one-third of deferred payments are for precautionary reasons or to repay other debt obligations (Chart 3).

Chart 3: Self-reported reasons for requesting a deferral

Chart 3: Self-reported reasons for requesting a deferral

Sources: Bank of Canada Canadian Survey of Consumer ExpectationsLast observation: 2020Q3

Among borrowers who own their homes and are deferring loan payments, the most common type of debt deferred is mortgage payments. Nevertheless, almost one-third of deferring homeowners deferred multiple loans. Most renters who deferred payments did so for either a credit card or an auto loan (Chart 4a and Chart 4b).

Chart 4a: Types of payments that homeowners defer

Chart 4b: Types of payments that renters defer

Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020

Most borrowers deferring payments have healthy credit scores. That said, borrowers with deferred accounts tend to have lower credit scores than those whose accounts are not in deferral. This is especially true among borrowers who rent (Chart 5a and Chart 5b).

Chart 5a: Percent of homeowners in each credit score tier

Chart 5b: Percent of renters in each credit score tier

Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020

Most borrowers deferring payments are not near their limits on revolving credit products, unlike those who are severely behind in their payments. However, credit utilization rates of deferring borrowers are somewhat higher than those of borrowers who are not deferring (Chart 6, panels a to d).

Chart 6a: Utilization rates of credit cards—homeowners

Chart 6b: Utilization rates of credit cards—renters

Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020

Chart 6c: Utilization rates of HELOCs—homeowners

Chart 6d: Utilization rates of lines of credit excluding HELOCs—renters

Note: HELOCs are home equity lines of credit.
Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020

Many payment deferrals have ended as of September 2020. This is most notable for credit card deferrals, while, in contrast, roughly half of mortgage deferrals are still active (Chart 7).

Chart 7: Status of payment deferrals

Note: HELOCs are home equity lines of credit.
Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020

As of September 2020, most borrowers with expired deferrals have resumed payments. In fact, arrears rates of expired deferrals are below rates that prevailed before the COVID‑19 pandemic. Of expired deferrals that are at least 30 days behind in payment, installment loans and auto loans among renters have the highest rates of arrears (Chart 8a and Chart 8b).

Chart 8a: Share of accounts at least 30 days behind in payment

Chart 8b: Share of expired deferrals at least 30 days behind in payment

Erratum: The data for Chart 8a were originally plotted incorrectly. This issue was corrected on February 4, 2021.
Note: HELOCs are home equity lines of credit.
Sources: TransUnion and Bank of Canada calculationsLast observation: September 2020