A large share of households have borrowed thanks to low rates and the cost-of-living pressuring finances
Interest rates will not remain at their current low level, but a rise will derail the finances of millions of Canadians according to a new poll.
More than half of respondents surveyed by MNP said they are concerned about the impact of rate hikes on their finances and 54% are more concerned about their ability to repay their debts than they used to be.
While the cost of borrowing has been rising for many ahead of expected Bank of Canada interest rate hikes, the expectation that several BoC hikes could begin next week (March 2) is worrying.
Forty-seven percent of respondents said rising rates could mean financial trouble for them and more than one third believe they will be pushed closer to bankruptcy.
Six in 10 of those Canadians with a mortgage due for renewal this year are worried that they could be in financial trouble if rates rise much more. Those with variable rates could be facing significant increases.
Those with other borrowing are also concerned, including 75% of those who have borrowed money they can’t pay back quickly and the same share of those who only make minimum repayments on a credit card or personal line of credit.
“As we approach what is likely to be the first of several interest rate increases in the coming year, more Canadians are concerned about how they would cope,” says Grant Bazian, president of MNP LTD., the country’s largest insolvency firm. “The most vulnerable are those who have taken on credit to get by and aren’t able to pay down the debt. The added debt servicing costs are coming at a time when many Canadians are already finding it less affordable to feed their families or pay for things like housing.”
Younger Canadians more concerned
The survey, conducted by Ipsos, shows that Canadians aged 18-34 are most likely to be concerned about the impact of rising rates on their financial situation.
Almost half of this cohort said increases could push them towards bankruptcy.
“Many younger Canadians who have yet to pay off debts on significant expenses such as tuition, a car or a home may be more negatively affected by rate hikes than Canadians over 55 years of age,” said Bazian. “Canadian households that are struggling with debt are not the only ones who are concerned about the impact of interest rate increases. The rising cost of living is likely causing even those who are more confident with their financial status to feel uneasy about the impact of rate hikes.”
Cutting back
In readiness for higher borrowing costs, 8 in 10 say they will be more careful with how they spend their money.
Even three quarters of those who consider their financial situation to be ‘excellent’ say they are being more careful with how they spend their money.
However, a lack of clarity as to what impact rate rises will have on personal finances is prevalent and two thirds of those who say their financial situation is ‘poor’ are not prepared for higher rates.
