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Canadians ‘maxed out’ in debt and have no plan for repayment

Anyone heaving a sigh of relief that the Bank of Canada has no plans to keep raising interest rates, should worry about the reason for that decision.

A recent survey revealed that 48 per cent of Canadians would not be able to pay their bills if they came up just $200 short in any given month, according to the latest quarterly survey from business advisory firm MNP Ltd.

That’s up from 46 per cent in the previous quarter. The percentage has been roughly in this range for the two years the survey has been running.

But with interest rates rising over the past year-and-a-half, Canadians’ confidence in their ability to carry their debt is declining. MNP’s index tracking households’ debt confidence fell four points in the latest quarterly survey, “signalling growing concern and deteriorating financial stability for many,” MNP said.

Between the summer of 2017 and the fall of 2018, the bank raised its key lending rate five times, to 1.75 per cent from 0.5 per cent.

These hikes along with tougher new mortgage regulations, has halted even more household debt. Overall household borrowing has fallen to its lowest level in more than three decades, but is still growing, and hit another record high at the end of 2018.

Recently a report from CIBC revealed that Canadians are way too anxious to get into the housing market and they may be throwing caution to the wind when it comes to responsible borrowing.
Paying down debt or saving for the future is seen as more of a luxury than a necessity.

Relief may be on the way for consumers, in the form of lower mortgage rates. In a note last month, economists at the Bank of Montreal noted that the interest paid on a five-year Government of Canada bond has dropped steeply since late last year.

If things continue the way they are, it is likely the Bank of Canada will be compelled to start slashing interest rates. -CINEWS

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