Subprime consumers more likely to take on additional debt, report shows
Canada’s credit market is showing signs of recovery with mortgage originations jumping 51% year-over-year in the first quarter of 2025, according to new data from TransUnion released Wednesday.
The credit reporting company found total Canadian consumer credit balances reached $2.52 trillion in the second quarter of 2025, marking a 4.4% year-over-year increase. However, when adjusted for inflation, the actual growth was a modest 3%, suggesting much of the apparent increase stems from rising prices rather than genuine expansion in borrowing.
“Subprime consumers are more likely to feel the impact of higher costs of living and may choose to take on additional debt, such as credit card balances, to help cover the costs of goods and services," said Matt Fabian, director of financial services research and consulting at TransUnion Canada.
The housing market rebound was driven primarily by younger buyers, with Millennials accounting for 41% of all new mortgages and Generation Z representing the fastest-growing segment at 66% year-over-year growth. Lower interest rates and regulatory changes introduced in 2024 helped fuel the renewed demand, the report noted.
Despite the increased activity, affordability challenges persist. The average new mortgage loan amount climbed 6.9% year-over-year to $368,432, with British Columbia leading at $503,435 and Ontario following at $458,124. Both provinces remain well above the national average due to persistently high home prices in Toronto and Vancouver.
The credit landscape reveals stark regional disparities. Alberta recorded the highest serious delinquency rate at 2.29%, up 11 basis points from the previous year. Quebec maintained the lowest delinquency rate but still saw a three-basis-point increase, potentially linked to elevated unemployment.
Inflation’s impact on consumer behaviour varied significantly across credit tiers. While super prime borrowers saw their inflation-adjusted balances drop nearly 33%, subprime consumers experienced a 15% increase, highlighting how rising costs disproportionately affect lower-income households.
Looking ahead, more than two million Canadian mortgages are scheduled to renew between 2025 and 2026. Many of these loans were originally secured at ultra-low rates near 1%, meaning borrowers will likely face substantially higher monthly payments.
“Despite encouraging signs of economic recovery and easing inflation, the Canadian credit market remains fragile,” Fabian said. “Financial institutions must remain vigilant, particularly as mortgage renewals accelerate and regional economic pressures mount.”
The Consumer Credit Industry Index declined 1.4 points to 98.8 in the second quarter, reflecting continued economic uncertainty and consumer financial stress across the country.
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