In a fiscal environment characterized by immense activity in the borrowing and mortgage sectors, Canadian consumers are at significant risk of crushing debt if interest rates increase, various observers warned.
A significant upward spike in interest would saddle debtors with larger monthly payments, and government officials fear that this development would make it more difficult for people to service their debts. Liberal government officials said that this possibility is the exact reason for income-augmenting measures such as tax breaks and the expanded child-care program.
“It’s certainly something that you find in the very broad basket of risks that confront the Canadian economy,” Liberal MP and House of Commons finance committee member Steven MacKinnon stated, as quoted by Yahoo! Canada Finance
Analysts agreed with the assessment, adding that younger home owners are among the most susceptible should interest rise.
“Once interest rates do start to go back up, the very vulnerable borrowers out there will very likely face a certain amount of difficulty in trying to finance those obligations. It’s a definite medium-term concern,” TD Securities head of global macro strategy David Tulk said.
The Bank of Canada said in a report in December that households with debt exceeding 350 per cent of gross income had risen to 8 per cent, up from 4 per cent before the 2008 recession.
Latest figures from the Bank of Canada said that the fraction of households with debt-to-income ratios in excess of 350 per cent shot up to 8 per cent, double the number prior to the 2008 crisis. Some analysts argued that this, coupled with predictions of slower economic growth until late 2017, might mean that any rate increase won’t be a sharp as feared.
“We think the Bank of Canada will move gradually, and therefore it’s unlikely [there will] be a shock to the housing market,” RBC economist Robert Hogue said.