The demand for home-equity lines of credit (HELOCs) has increased even as the housing market slumps, which could the country’s financial system to vulnerabilities, said rating company DBRS.

HELOCs reached $243 billion as of Oct. 31, representing 11.3% of total household credit, the highest share since mid-2015, DBRS said in a recent analysis.

The analysis found that borrowing to fund activities like home renovations and car purchases has grown faster than residential mortgages since 2017, and undrawn commitments at the large Canadian banks stood at $120 billion, according to a Bloomberg report.

“The flexibility of HELOCs could increase financial system vulnerabilities,” the analysis said. “In the event of a correction, borrowers could find themselves with a debt load that exceeds the value of their home, which is often referred to as negative equity.”

The analysis also showed that HELOC borrowing may make it tougher for lenders to identify emerging credit problems, as borrowers can use HELOCs to manage increases in their debt loads by consolidating high-interest loans into a secured credit line that charges a lower interest rate.

Toronto-Dominion Bank, which has recently revealed plans of using HELOCs to regain customers, has the largest exposure to HELOCs at nearly 39%, followed by Royal Bank of Canada at 18% and the other large banks averaging 11%, according to the analysis.

 

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