Interest rate hikes needed to quell record household debt: C.D. Howe

A survey-based report released by the Certified General Accountants Association of Canada on Tuesday says single-parent families, retirees and households making less than $50,000 "face a bleak financial situation," as more than half of indebted Canadians continue to borrow to pay for day-to-day living expenses like food, housing and transportation.

To take Canadian households out of this increasingly precarious position, Finn Poschmann, vice-president of research for C.D. Howe, says the Bank of Canada (BoC) must raise its trend-setting overnight lending rate even if it means some families will struggle.

"In a transition phase you're going to have some households that are going to have a slightly harder time making their payments. But the reason you raise rates and do so incrementally is so that you don't have huge shocks from big run-ups in the interest rate later on," he told CRE Online.

Poschmann expects BoC Governor Mark Carney will raise the overnight lending rate a quarter point during his next interest rate announcement on July 19.

C.D. Howe is calling on the bank to continue raising the rate a quarter point each subsequent meeting, or every six weeks.

"The idea of slow interest rate increases starting this summer is to avoid trouble getting worse. And if you're worried about household debt rising - rising unmanageably - then the steady rate increases are exactly what you want to discourage people from taking on more debt than they can afford."

The CGA Canada says if household debt was distributed evenly, every family with two children would owe an estimated $176, 461.

"The debt of a typical household is rising," says Rock Lefebvre, CGA-Canada's vice-president of research and standards and co-author of the report. "And the financial situation of certain groups of households is much worse than average and continues to deteriorate. This is concealed if you focus only on the national or aggregate picture."

Nearly 60% of respondents indicated their household income decreased or had remained unchanged over the past three years.

The debt-to-income ratio hit a record high of 146.9% in the first quarter of 2011, compared to 144% in late 2009.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Get help choosing the best mortgage rate

Just fill in a few details, and we'll arrange for a Mortgage adviser to help you find the best mortgage for your needs

  • How soon do you want a mortgage?
  • Name
  • Where do you live?
  • Phone number
  • E-mail address

Industry news

Submit a press release


Do you invest in commercial properties?