Canadians are bracing for another interest rate hike and many are reporting they fear they are being pushed to the financial brink.
It鈥檚 widely expected that the Bank of Canada will raise its benchmark interest rate Wednesday to 1.75 per cent from 1.5 per cent. The bank has already raised that key rate four times since the summer of 2017.
One in three respondents to a new Ipsos survey conducted on behalf of insolvency trustees MNP said they are concerned that higher interest rates could force them toward bankruptcy. That was up about six per cent over a similar survey in June. Higher interest rates are already pinching the budgets of about 45 per cent of respondents and 52 per cent say they are concerned about meeting their debt payments.
CTV鈥檚 chief financial commentator Pattie Lovett-Reid told BNN Bloomberg Tuesday that rising interest rates and climbing debt levels have been a concern among economists for more than a year. Some Canadians will find it harder to manage their debt because wages are not keeping pace, she said.
And younger Canadians appear to be among the most vulnerable, with the Ipsos survey showing 62 per cent of millennials (those aged 18 to 34) are worried about paying their bills, and 46 per cent are concerned about bankruptcy.
The survey was conducted between Sept. 10 and Sept. 17, and 2,003 Canadians participated.
Real estate expert Karen Filiatrault says mortgage professionals she speaks to predict Wednesday鈥檚 announcement will be the first of four hikes, coming over the next year, that will bring the Bank of Canada鈥檚 key interest rate up a total of one per cent.
鈥淣ow would be a good time to maybe think about calling your mortgage professional,鈥� she told CTV鈥檚 Your Morning Tuesday. Filiatrault says the answer for many people will likely be fixed mortgages.
Taking a $400,000 mortgage with a 20-year amortization and a 3.5 per cent interest rate as an example, a .25 per cent increase amounts to paying $50 more each month. If all the expected hikes come to pass, by the end of 2019 that mortgage will cost an additional $200 a month.
That highlights findings from the Ipsos survey, where 44 per cent of respondents said they are within $200 of insolvency every month and another 27 per cent said they have nothing left after covering their obligations.
鈥淪ome people are really going to feel the bite,鈥� said Filiatrault, pointing out that many homeowners, millennials in particular, have not experienced times of climbing interest rates.
鈥淎ll of a sudden some are thinking, 鈥業 took on this home, I took on this vehicle. I have these payments and I鈥檓 not sure how I鈥檓 going to make the payment,鈥� echoed Lovett-Reid.
But according to the Ipsos survey, Canadians remain optimistic. Seventy-nine per cent plan to counter rising interest rates with more cautious spending, 28 per cent say their debt situation has improved over the past year and 39 per cent expect their debt to be better a year from now.
The trepidation about paying debts during times of increasing interest rates was most pronounced in Atlantic Canada at 65 per cent, followed by Alberta (55 per cent), Saskatchewan and Manitoba (53 per cent), Ontario (52 per cent), and B.C. and Quebec (both 48 per cent).
According to the Bank of Canada, the average Canadian carries debt of about $1.70 for every dollar of after-tax yearly income. That means there are Canadians carrying $3 or $4 of debt for every dollar they have to spend, says Andrew Pyle of the Pyle Group at Scotia Wealth Management.
鈥淭hat is where the level of concern is starting to germinate.鈥�
Canadians are going to have to quickly change their mindsets about debt, says Lovett-Reid. Those who are truly over their heads with a mortgage could trigger a shift in the real estate market.
Filiatrault says rising interest rates might affect home prices, but it鈥檚 hard to predict to what extent.
鈥淲hen interest rates go up, it鈥檚 usually a sign of economic success in the economy and to that degree, people are making more money and the employment rate is up.鈥�
Why are interest rates climbing?
鈥淭wo words,鈥� said Filiatrault, 鈥淯nited States. So basically when they have some economic momentum, we follow suit as the No. 1 trading partner we kind of follow what they鈥檙e doing. And over the past couple of years they鈥檝e steadily increased interest rates.鈥�
A primary catalyst of the change is the new trade deal between Canada, the U.S. and Mexico, which she says brings more stability and assurances for Canada.
