Study: Canadian households with heavy mortgages unprepared for higher interest

Analysts note that first-time homebuyers face great risk when they take more mortgage than they can handle

Study: Canadian households with heavy mortgages unprepared for higher interest
A recent study by the C.D. Howe Institute revealed that young Canadian homeowners from around half a million households are currently struggling with a debt-to-income ratio of above 500 per cent, leaving them vulnerable to financial hardship.
The study, titled Mortgaged to the Hilt, found that around 10 per cent of indebted households have less than $1,500 in assets, liquid or otherwise.
Analyst Craig Alexander, who co-authored the study, said that focusing on debt averages might lead to unawareness of the plight of less well-off young homeowners, who abound in bustling high-cost housing markets like Toronto and Vancouver.
Alexander recommended Ottawa authorities to enact measures that would prevent households in this category from taking unmanageable debt loads, as these homeowners have insufficient capacity to address interest rate hikes or personal financial problems.
“The share of households that have no financial buffer has been going up. There's more financial vulnerability now than there was before,” Alexander told CBC News.
Alexander added that these steps would prevent a downward spiral towards a weaker economy, which would be precipitated by financial problems among a significant fraction of the population and the consequent reductions on consumer spending.
Alexander said that authorities should re-examine their policies and start adjusting minimum downpayments in accordance with the size of the mortgages to snag higher-priced markets. He also suggested that higher credit score requirements be set in place for mortgage applicants.