Canadians ramping up debt in Q3
Canadians seem convinced interest rates are not going up any time soon and pushed their debt up in the third quarter, according to a new report.
Credit rating agency TransUnion said Thursday that non-mortgage debt rose to an average of $21,686 per person at the end of the third quarter — up 2.3 per cent from a year ago.
Alberta continues to be the most indebted province in the country in terms of non-mortgage debt, although the $27,663 average balance owed was only 0.46 per cent higher than a year ago.
Serious delinquency rates in the province jumped by 13.4 per cent from a year ago to 3.13 per cent. The 90-day delinquency rate in Saskatchewan rose 12 per cent to 3.46 per cent. National delinquency rates stood at 2.7 per cent, up slightly from 2.6 per cent.
“Canadians continued to add debt in the third quarter, with balances increasing across most loan types,” said Jason Wang, director of research and analysis in Canada for Chicago-based TransUnion.
TransUnion forecasts debt will likely continue to rise over the next two years, in part because of some of the messages coming from Ottawa.
“The recent government outlook of weak economic conditions may have led some consumers to believe low interest rates will be here for a long time, which could result in pushing balances even higher due to low expected borrowing costs,” Wang said.
Quebec balances rose the fastest from a year ago at 3.6 per cent but the average non-mortgage debt in the province was $17,969. Ontario debt grew 2.6 per cent from a year ago to $21,620, making it the province with the second-fastest growing debt level.
The overall forecast for the country is for non-mortgage debt to rise to $21,747 by the end of 2017 and $22,000 by the end of 2018.
The credit rating agency is encouraging stress testing because it found in a recent study that Canadian are not ready for any sort of debt increase.
It said the review found 700,000 Canadians may not be able to absorb even a quarter of a point interest rate hike.
“Up to one million consumers could be impacted by a full one percentage point rate hike,” it said.
The Bank of Canada’s overnight interest rate target has been set at 0.5 per cent since it was cut twice last year.
Wang said financial institutions are taking a closer look at their debt, encouraged by new government regulations which tightened rules on lending. He added consumers should also be looking closely at their debt.
“Take how much variable rate they have and multiple by a provincial rate increase. T hat will give them a dollar amount of the payment they will have to deal with,” said Wang.