Canadians ramp up debt, encouraged by low rates
Albertans remain most indebted as national average climbs above $21K
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.
Debt 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. It was up 2.3 per cent from a year ago.
“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 that 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. “With the latest data in hand, we think it’s especially important for lenders to continue monitoring and stress-testing their portfolios to ensure they can maintain stable performance when interest rates do eventually rise.”
Alberta continues to be the most indebted province in the country in terms of non-mortgage debt, but the $27,663 average balance owed was up only 0.46 per cent from a year ago. 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 secondfastest 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 Canadians are not ready for any sort of debt increase.
“A recent TransUnion study found that 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,” TransUnion said.
Wang said financial institutions are taking a closer look at their debt, encouraged by new government regulations that tightened rules on lending. He added consumers should also be looking closely at their debt.
“Take how much variable rate they have and multiply (it) by a provincial rate increase. That will give them a dollar amount of the payment they will have to deal with,” he said.