Credit Risk

Already pinched, many Canadians anxious about higher rates

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Nearly half of Canadians are now concerned about repaying their debts, while four in 10 say that further rate increases may leave them "in financial trouble," according to a poll released Monday morning by insolvency firm MNP Ltd. -1>In September, Canadian households' credit-market-debt-to-disposable-income ratio hit 167.8 per cent, the latest in a string of national indebtedness records.

 

Gillian Goldblatt, a licensed insolvency trustee and manager with msi Spergel Inc. in Toronto, says rate increases means some of her clients are no longer able to afford their lifestyles. "You can live in a bubble for a while until some event snaps you out of it," she said Monday. "That's when we have people come to see us."

 

Ms. Goldblatt said she's seen an influx of millennials approach her firm. With interest rates rising, she said they now realize that their spending habits, encouraged by easy credit and tap-and-go technology, do not align well with the financial sacrifices needed to start families and to break into the housing market. Among the various structural struggles faced by millennials, "a lot of it comes down to a lack of education," she said, suggesting that public schools hardly include enough material on financial literacy in curriculums. The effects of that, she continued, are now revealing themselves in reality.

 

Earlier this month, the Bank of Nova Scotia revealed a similarly -1>foreboding forecastfor Canadians looking to get into the housing market: Even if home prices remain relatively stable, average mortgage carrying costs for new buyers could rise by about 8 per cent next year and another 4 per cent in 2019. That would "easily" outpace the bank's projected average annual per-capita household income growth of 2.5 per cent, chief economist Jean-François Perrault wrote in an Oct. 5 report.

 

The insolvency firm also found that since its last survey was conducted in June, the average Canadian now has $149 less each month after paying bills and obligations. And while respondents were more confident than during the last survey about being able to take on a one-point interest-rate increase, their confidence fell significantly when asked specifically about a $130-a-month increase in interest payments.

 

Source: Nearly half of Canadians are now concerned about repaying their debts, while four in 10 say that further rate increases may leave them "in financial trouble," according to a poll released Monday morning by insolvency firm MNP Ltd. -1>In September, Canadian households' credit-market-debt-to-disposable-income ratio hit 167.8 per cent, the latest in a string of national indebtedness records.

Published under: Credit Risk
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