720,000 homes account for 1/5th of household debt

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Amid unprecedented levels of debt, the Bank of Canada warned last week that the disproportionate distribution of household debt would affect already-burdened consumers the most, thereby amplifying the effects of a recession.
BoC deputy governor Lawrence Schembri said in a February 24 speech that approximately 720,000 homes, many of whom have younger owners under age 45, account for around 20 per cent of Canadian household debt. This translates to nearly $400 billion in unpaid accountabilities.
In the event of a recession, Schembri said, these disadvantaged homes would have to cut their spending to a greater degree compared to most, possibly even missing out on servicing their mortgages and thus placing the burden of losses on banks and insurers alike.
Boc figures revealed that this segment has doubled in size since the financial crisis, from 4 per cent to 8 per cent of debt-holding households. If unemployment remains unabated, Schembri said, this proportion of unpaid debt would represent an existential threat to Canada’s financial system.
“Our simulations suggest that in response to this shock, household arrears rates could rise significantly, from 0.4 per cent in 2014 to reach as high as 1.8 per cent after three years,” Schembri stated in his speech, as quoted by The Insurance & Investment Journal.
“About 20 per cent of this estimated rise would be attributable to the increase in debt and its greater concentration among highly indebted households since 2007,” he added.
  • Gayle Peddle on 2016-03-03 10:51:56 AM

    In my opinion, credit card debt is the major problem. People need to live somewhere. If they are not making mortgage payments they would be paying rent. I think it is better to invest in a home. Interest rates on mortgages are very low - interest rates on credit cards are exorbitant if the full amount owing is not paid when due.

  • John on 2016-03-03 12:29:43 PM

    Gayle, I completely agree with your opinion. No attempt has been made to restrict access to unsecured debt.

    It's shocking how the government is fixated on housing and not the true problem - unsecured debt/vehicle loans...

    I've just recently had a client come to me after purchasing a vehicle that have a loan that is $20k over the purchase price of their new car.

    Apparently dealerships are now doing debit consolidation and using the vehicle for security.

    Tell me that isn't going to be an issue in the future.

    At least real estate values don't drop 20% as soon as you move in...

  • tom on 2016-03-04 12:28:04 PM

    A home is not an investment

  • Keith on 2016-03-04 5:23:41 PM

    Why... Why oh why do mortgage broker continue to harp about credit card debt? When will brokers realize that credit card debt is self imposed? Consumers have choice!! They CHOOSE to over spend buying things that they cannot afford.

    People need to take accountability for their choices, and I think that when brokers complain about credit card debt they only look foolish.

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