Many Canadians are facing the consequences of spiraling debt. The Bank of Canada has increased its key interest rate three times since last summer, prompting some of Canada’s larger banks to raise their prime lending rates. Forty-seven percent of Canadians are feeling the pinch, indicating they will not be able to meet ordinary living expenses without incurring more debt. More than half say that high-interest rates will make it increasingly difficult to repay existing debts, with 33 percent fear that rising interest rates will force them into bankruptcy.
Easy credit has provided Canadians with a false sense of security and enticed many into the housing market. With household debt already at an unprecedented level, many homeowners will not be able to refinance their current mortgage debt.
Canadians have succumbed to the lure of easy credit. Consumer household credit totaled $2.13 trillion, with residential mortgages making up 72% of that.
Easy credit and rising home prices have created a debt trap for many Canadians, and many face an uncertain future. With little savings to cushion a financial blow, Canadians have good reason to be concerned.
Canada’s household debt has exceeded its GDP for the first time, and most Canadians are living on a precarious edge. Faced with mortgage payments they find difficult to repay, 4 out of 10 Canadian homeowners are without the necessary funds to meet normal living expenses.
One of the problems is that income has failed to keep pace with rising debt. Those with debts beyond their ability to repay will be the most adversely affected.
So far, home prices have continued to increase, masking the overall debt problem. Any economic downturn, combined with little savings, could cause people to lose their homes. Homes can be difficult to sell in a tight market, causing delinquencies to rise.
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