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Higher rates to choke indebted households further

by Ephraim Vecina Aug 2018 MBN

In a newly released analysis by the Canadian Department of Finance, already indebted households are the most likely consumer segment to feel the negative impact of the Bank of Canada’s recent interest rate hikes.

The analysis, which was acquired by The Canadian Press under the Access to Information Act, warned that households already laboring under debt-to-income levels of at least 350% are at the greatest financial risk at the moment.

Data from Statistics Canada indicated that Canadian consumer credit shot up from $608 billion in May 2018 to $612 billion in June. Indebted Canadian households pointed at mortgages – which comprise as much as 85% of their total accountabilities – as the main contributor to their situation.

Read more: Canadian households increasingly relying on debt to stay afloat – study

The analysis characterized the at-risk segment as more likely to be younger (under 45 years old), middle-income households, along with self-employed individuals. They are also more likely to be residents of British Columbia and Ontario.

“The expected increase in interest rates over the next few years will have various impacts on Canadian households, including an increase in the cost of servicing debt,” the Finance Department stated. “Naturally, households with high debt levels would see the largest increases,” the report added, noting that approximately 70% of Canadian households are carrying debt.

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