Canadians’ Financial Woes Prompted by High Interest Rates

According to Environics Analytics, rapidly increasing housing prices may well be adding value to the average Canadian citizen’s net worth. However, this is being compounded by debt and increasing interest rates, which are serving to put pressure on discretionary spending. According to the analysis put forward by Environics Analytics, interest rates rose by around $9 billion in total between 2016 and 2017. While this was accompanied by an increase in the net worth of the average Canadian, this equated to just 8.5% and around $808,000, significantly lower than the increase in interest rates. Furthermore, the net worth increase was traced back to non-liquid assets, such as property.

Amid this landscape, the debt levels increased by 4.5% in 2017, and the mean interest-expense-to-income ratio increased for the first time in ten years with a 40 basis point representing a 6.4% rise.

The report also highlights how climbing debt levels combined with the increase in interest rates entails that the average Canadian household encountered interest rate charges that were $544 higher than the previous year.

The Bank of Canada, which has increased its interest rates by four times since the middle of 2017, has stressed that household debt represents a major area of vulnerability within the Canadian financial system.

Speaking on behalf of Environics Analytics, Peter Miron, the organization’s Senior Vice-president of Research and Development elucidated:  “For many Canadians, the rising interest rates over the past year have already cost them the equivalent of an extra mortgage payment.”

He added: “As interest rates have steadily increased since late 2017 we expect the strain on household finances will be greater this year.”