Many people accustomed to living beyond their means may soon hit a wall if the Bank of Canada’s apprehensions materialize.
“Debted owners, fasten your hats,” wrote my colleague Michel Girard this week, following an outing by the Governor of the Bank of Canada.
The institution is concerned about the indebtedness of Canadian households.
“Throughout the pandemic, an increasing number of Canadians have taken out very large mortgages relative to their income, with variable rates and an amortization period of over 25 years. And according to our models, the liquid assets of the most indebted households increased only slightly during this time,” said Tiff Macklem.
Rates increasing
Those households that bought high-priced property during the pandemic did so when mortgage rates were at rock bottom. But, with these rates continuing to rise, payments will increase and become difficult to meet.
This debt problem is not new. According to what Statistics Canada reported in the spring, household debt as a proportion of disposable income was at an all-time high. This proportion was already very high before the pandemic as well.
Other costs
We must add to this reality the price of gasoline, which has exploded, just like the grocery bill, which has ballooned without common sense. Wages obviously did not follow.
This means people are going to have to cut back on non-essential spending. This is all the more true since the bill has increased for several services and in several restaurants.
The country is on the verge of a financial crisis, according to the findings of the Bank of Canada. And if it continues, after two years of a pandemic that pushed us to the limit, our collective morale will also fall into crisis. Caution is called for. Budget review as well.
