Canadians' debt concerns surge amid rising rates

Almost one in four borrowers are not prepared to deal with rates rising by 1%

Canadians' debt concerns surge amid rising rates

As Canadian borrowers continue to bear the brunt of interest rate hikes, a new survey has indicated that a growing number are increasingly concerned about their household budgets.

The latest MNP Consumer Debt Index, a quarterly poll conducted by Ipsos on behalf of insolvency firm MNP LTD, showed that nearly six in every 10 Canadians are already feeling the impact of rate increases, with almost a quarter (24%) saying they would not be financially prepared to deal with a one-percentage-point interest rate hike.

That news, which arrived before the Bank of Canada’s most recent policy rate announcement last week, means the percentage of Canadians who are concerned about the effect of rate hikes has surged by 13 points since MNP started the survey in 2017, the company’s senior vice president Wesley Cowan (pictured top) told Canadian Mortgage Professional.

While he said consumers’ overall mood has lifted slightly this year because of the improving pandemic picture, other factors such as rising rates and inflation appear to be dampening enthusiasm considerably.

“We’ve seen a slightly improvement since our January Ipsos survey in terms of people’s general mood and perceptions,” he said, “and I think that’s to be expected given that we came out of the pandemic and people were quite happy to have freedoms they didn’t have before.

“But in general, we’re still finding that with the interest rate increases, that’s a bigger factor and the inflation rate – those things combined together are a really big concern.”

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It’s difficult to glean from the survey whether Canadians with mortgage debt represent the majority who are feeling the brunt of higher rates, although it seems fair to assume that would be the case.

“I think most people who reflect on this, if they’re in a mortgage right now and they’re seeing these rates going up, they’re becoming more concerned about [this question]: ‘When it comes time for me to renew my mortgage, what am I looking at here, and am I going to be able to manage the new monthly payment I may be faced with?’” Cowan said.

The growing number of Canadians who feel they may be unable to handle higher debt payments is likely to see more and more seek either financial assistance or some kind of debt refinancing, according to Cowan. That’s not just because rates look set to continue rising for the remainder of the year, but equally because inflation – which has spiralled alarmingly upwards in recent months – is exacerbating the cost-of-living crisis facing many people.

“You’ve got folks that are finding they have to move to a new location,” he said. “Their rent costs are higher, their food costs are higher, their gasoline costs are higher. All of those things put together are making it a lot more difficult to manage the monthly budget – and particularly if the payments on their debts are going up as well.”

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The survey found that to cope with cost and rate increases, Canadians are beginning to cut back significantly on expenses they deem non-essential like dining out, entertainment and travel (46% of respondents), while 37% said they were buying cheaper versions of everyday purchases.

Many Canadians are also looking to the remainder of this year with some trepidation: half of the survey respondents said they would be in financial trouble if rates were to rise even further, and nearly 40% said rate hikes had the potential to bring them closer to possible bankruptcy.

Cowan said that difficult financial decisions were ahead for Canadians in the current rising-rates cycle – but emphasized that assistance was always available for those borrowers who needed it.

“I think that it’s a matter of tough budgeting decisions right now for a lot of people in order to make ends meet,” he said.

“But people should be aware that if they really get underwater, there are options for them – and they’re best to consult with someone like a licensed insolvency trustee just to ensure that they’ve thought of everything they possibly can, and if they need some formalized relief that we can help them to get that.”

In another intriguing finding from the survey, two in five respondents expressed concern about their current level of debt – and 42% said they regret the amount of debt they took on.

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