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Canada’s Mounting Debt Approaching Critical Level as Households Struggle to Pay Their Bills

17 October 2016

More than half of Canadians are within $200 of being unable to meet their monthly expenses, yet households still show no sign of debt aversion.

More Canadians are falling behind on their bill payments, while the majority of households are within $200 of being unable to meet their monthly expenses, according to a recent survey.

Calgary-based MNP LLP said last month that 56% of Canadians are just $200 away from being overwhelmed by debt. That means more than half the nation would face negative cash flow with an additional $200 in monthly debt. That’s up from 48% six months ago. The survey also found that 31% are technically insolvent, which means they are not paying their bills on time.

The results, which are based on a survey of 1,502 respondents between September 6-12, are the latest sign that Canadians may be spending themselves to financial ruin.[1] As the consumer goes, so too does the economy. Like other advanced industrialized nations, Canada’s economy is heavily consumer-based. According to The World Bank, household final consumption accounts for roughly 56% of Canada’s GDP.[2]

A separate survey last month from credit agency TransUnion found that 718,000 Canadians wouldn’t be able to absorb a 25-basis point increase in the Bank of Canada’s interest rate. A one percentage point increase would push a staggering 917,000 Canadians to the brink. Luckily for those households, the BOC is unlikely to raise interest rates anytime soon.

Canadians appear to be showing no signs of debt aversion. Latest data from Ottawa’s statistics agency showed that Canada’s household debt as a ratio of disposable income was the highest in the G7, leading financial watchdogs to issue stern warnings that the Canadian economy is showing early signs of a major financial crisis.

The Bank for International Settlements, an international financial authority, recently reported that Canada had the second-highest credit-to-GDP gap in the world at 12.1%. Only China’s 30.1% gap was higher.[3] The credit-to-GDP gap essentially measures how much the private non-financial sector has borrowed in a given country compared to the size of its economy.

While the BOC won’t raise interest rates anytime soon, the Canadian government recently introduced a new set of mortgage rules that make it more difficult for borrowers to secure financing. The new rules essential mean homebuyers must qualify for a more expensive loan even if they don’t have to make a bigger payment. In other words, borrowers will be tested on their ability to pay their mortgage based on the BOC’s posted rate, which is currently at 4.64%.[4] Many borrowers will be unable to afford the home they want under these new conditions unless they make a bigger down payment.

Experts seem to agree that consumers debt levels could become dangerous for the nation’s outlook over the medium-term. Households are already struggling to pay off their debt, but have shown little signs they have had enough. The only bright spot is the rising value of real estate, which is helping homeowners tap into existing equity. Other than that, more Canadians now say are concerned about their debt levels. Only time will tell whether this translates into action.



[1] Garry Marr (September 28, 2016). “Canadians are just $200 away from being overwhelmed by debt, new survey finds.” Financial Post.

[2] The World Bank. Household final consumption expenditure, etc. (% of GDP).

[3] Jesse Ferreas (September 20, 2016). “Canadian Debt Is The Subject Of An Alert By The Bank For International Settlements.” The Huffington Post Canada.

[4] Andrew Russell (October 3, 2016). “Ottawa’s new mortgage requirements could make it harder to secure a mortgage.” Global News.

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