Finance minister warned about indebted Canadians' increasing vulnerability to higher rates before the pandemic

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The memo obtained by the Financial Post outlines a risk that could re\u002Demerge even stronger when borrowing costs rise again

What the authors of that memo probably didn’t see coming was that borrowing costs were about to crater, as the Bank of Canada slashed its key interest rate in March 2020 to 0.25 per cent in response to the coronavirus pandemic.

If you don't get your financial house in order over the next three to five years … you're going to be susceptible to the next thing, whatever that isHousing markets have been heating up again recently as well, a trend that was cited in the memo as another possible reason for consumer insolvencies. In line with this possible explanation, the memo says, is that in British Columbia and Ontario, home to the pricey real estate markets of Vancouver and Toronto, the share of insolvencies filed by mortgage-bearing consumers had fallen sharply. Meanwhile, in the rest of Canada, those insolvencies had remained steady.

“If consumers don’t make a concerted effort to reduce their … non-mortgage debt over the next two to four years, and then rates start to go up — that could have a material impact on mortgage rates, which could have an impact on rental rates — then consumers will put themselves in difficulty,” said Scott Hannah, chief executive of the CCS, in an interview.

 

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Future headline: Finance minister continued massive deficits, seemingly ok with triggering inflation and increased interest rates. Mortgage & consumer debt defaults now on the rise.

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