Photo: Flickr / GotCredit

According to a recent poll conducted by Manulife Financial, there is a very small percentage of Canadians who say that they would be able to weather an increase in mortgage costs. Such data highlights the growing problem of debt that exists within Canada and its consumers, who have managed to take on nearly than 1.7 times their adjusted disposable income in debt according to information compiled by Statistics Canada in early 2017. The total amount of money that Canadians owe to their lenders has reached over two trillion dollars as a whole, according to data released by Bloomberg. According to the same source, the lion’s share of this debt was taken by mortgages, followed by consumer credit loans (credit card debt) as well as non-mortgage loans.

This massive gain in household debt has been blamed on various factors. For one, some experts have suggested that the massive increase in housing prices of the past few years have forced Canadians to take on bigger and bigger mortgages in order to pay for ever-more expensive homes. Staunch competition between buyers – where bidding wars have been common place in regions such as Vancouver, and most recently, London, Ontario, prices have been driven up even more – and therefore, levels of debt. Another factor that experts have suggested have contributed to this problem have been historically low interest rates, which have nearly hit rock bottom. The benchmark interest rate as set by the Bank of Canada remains at an incredibly low 0.5 percent.

Yet, despite taking on record levels of household debt, a worrying amount of Canadians say that they would be unable to pay their dues even if there is a small increase in payments. The survey by Manulife Financial has found that nearly 4 in 10 Canadians would have a problem with their payments if they increased by only one to five percent. Twenty percent of those polls responded that they could shoulder an increase of up to 10 percent before having financial difficulties, where another 22 percent said they could deal with an increase in payments of up to 30 percent.

Most worryingly, a ten percent increase in mortgage payments could be caused by an increase of just one percent increase in interest rates on loans. As a result, it is clear why the Bank of Canada is, for now, unwilling to stomach any significant increase to interest rates, given the current precarious financial situation that many Canadians find themselves in. 

Published Date: Jun 29 2017