Inflated house prices make Canadians world’s biggest borrowers

Canada’s high level of household debt has again been flagged by the OECD which also highlights an issue with investment property.

The intergovernmental organization says that Canada, South Korea and the UK are the top 3 nations for household borrowing; and Canada also has high corporate debt.

The red flag was raised in an excerpt of a report sue to be published next week by the OECD. Bloomberg reports that it states that Canada, Australia and the Scandinavian nations has continued to see debt rise from already elevated levels.

Consumer debt in Canada is above 100% of GDP, the only country in which that is the case. Debt servicing ratios are also high at around 60%; in the US it is slightly above 40%.

The OECD says consumers have taken advantage of low interest rates and have also added debt due to the rise in home prices.

The report says that Canadians are borrowing too much to finance home purchases, even when those purchases are for investment purposes. It calculates that house prices are around 50% higher than they should be based on the rent that can be charged.

"Although in part this reflects strong population growth, these developments may entail significant risk to financial stability, given the direct exposure of the financial system to the housing market," the OECD says.

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