Lender warns over rising household debt

Canadians are borrowing more as low interest rates help drive a thirst for credit. Non-mortgage loans increased in the second quarter of 2016 according to RBC, especially auto loans and lines of credit where balances grew 2.6 per cent from the same period of 2015.

Mortgage loans grew too with an extra 6.2 per cent borrowed in the second quarter of 2016, compared to a year earlier, as house prices increased.

RBC economist Laura Cooper questions whether the rise in debt may not be sustainable as a boost for Canada’s economy even assuming that there are no shocks around the corner. If there is a rise in unemployment or other significant economic change, high household debt levels could have a wide-reaching impact.

“Should a shock materialize that leads to a housing market correction, the large run-up in household debt indicates a ‘more severe and longer-lasting’ decline in household consumption than would otherwise have been the case,” Cooper wrote.

Canadians owe $1.65 or each dollar of income and RBC says that the percentage of highly-leveraged households – where debt-to-income ratios are above 350 per cent – is now 21 per cent, up from 13 per cent before the recession.

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