Bank of Canada takes aim at home equity lines of credit

John Samuel - Financial Post

The Bank of Canada sounded the alarm on growing household debt on Wednesday, taking aim in particular at the growing tendency of Canadians to take out lines of credit using home equity.

While the Bank has repeatedly warned on household debt levels in the past, on Wednesday it provided more detail about the type of debt Canadians are taking on, including its concerns about the rapid growth of so-called HELOC’s (home equity lines of credit).

The issue, as with any debt, is if these innovations or this access to debt is taken too far “Like any financial innovation, home equity lines of credit have both positives and negatives associated with them,” Bank of Governor Mark Carney said during a press conference in Ottawa.

“The issue, as with any debt, is if these innovations or this access to debt is taken too far.” He pointed to the concerns raised by the country’s banking regulator, the Office of the Superintendent of Financial Institutions, which said earlier this year that some lenders were too lenient in providing home equity loans. Mr. Carney’s comments build upon the release of the Bank of Canada’s Monetary Policy Report on Wednesday, a quarterly economic overview compiled by the central bank.

The report highlights the explosive growth of HELOC’s and mortgage refinancings in the past decade, which have surged to $64-billion as of 2010 from $8-billion in 2001. Canadians appear to be using such loans for two primary reasons, the Bank said. They are either paying down other higher interest loans, such as credit card debt, or using the money for everyday spending.