Canadian Consumer Debt Increases
Photo: Flickr / Aron Baker
According to a new report released by the federal bureau of number-crunching (officially known as Statistics Canada), the organization has sounded the bells of alarm in regards to the ever-increasing debt load held by Canadian consumers. When looking at the numbers, the agency has calculated that the average amount of debt held by Canadians is at a whopping 168 percent of average household income. That means that the average Canadian owes more than one and a half time their annual earnings in debt loans. This news comes on top of a recent poll conducted by Manulife Financial, which discovered that there is a very small percentage of Canadians who say that they would be able to weather an increase in mortgage costs.
Part of the increase in debt held by Canadians
has been due to rise of home prices in the country’s most populated housing
markets – especially in Metro Vancouver and the Greater Toronto Area. Indeed,
many economic and real estate experts have pointed out that the massive
increase in housing prices of the past few years in the two biggest population
centers in the country have forced Canadians to take on bigger and bigger
mortgages in order to pay for ever-more expensive homes. Certainly, housing
affordability has become such a concern that both the federal and various
provincial governments have undertaken a variety of measures that
simultaneously tried to cool down home prices as well as preventing Canadian
consumers from taking on more debt than they can actually handle. For one, the
federal government has introduced stricter lending policies in the form of more
rigorous stress tests for all mortgage loans. Additionally, the Ontario
government has introduced new rent control policies to try to prevent home
affordability from becoming uncontrollable.
According to experts, a ten percent increase in mortgage payments could be caused by an increase of just one percent increase in interest rates on loans. Unfortunately, because the country’s central bank has recently implemented an increase to the overnight lending rate to all financial institutions from 1% (a rate that has remained constant since 2008 to 2016) to 1.5% this July and then again to 2% in September, the amount of debt that Canadians will have to deal with will only grow. This is especially the case with new homebuyers, who will not only have to contend with higher borrowing costs, but also the aforementioned borrowing limitations as a result of new government regulations.
Published Date: Oct 11 2017