The recent Bank of Canada adjustments, which saw increased interest rates and stricter lending rules, have certainly had an effect on Canadian consumers and homebuyers.
Bank of Canada is reporting that gross Canadian debt rose by 3.5% per household this year. It’s a sign that Canadian over-borrowing is finally slowing down, even if a 3.5% increase doesn’t seem like much improvement (it is!).
It’s the slowest yearly debt increase Canadians have seen in the last 35 years.
“The pronounced slowdown in Canadian household debt growth continues unabated, largely due to the cooler housing market (at least in Toronto and Vancouver” said Doug Porter, chief economist at Bank of Montreal.
If you can believe it, the last time Canadian consumer debt grew by just 3.5% was in 1983, a time where interest rates put pressure on debt holders much like they’re doing today.
According to Huffington Post, interest rates were much higher back then. The Bank of Canada’s key lending rate peaked around 21% at the start of the 1980s in an attempt to curb persistent economic inflation.
Today’s interest rates are much lower compared to 1983, but based on inflation, Canadians today are carrying much more personal debt.
Canadians in 2018 are carrying $1.68 of debt for every $1 of disposable income making our nation the “most indebted people among G7 countries.”
New mortgage rules made Canadians do a double-take before attempting to borrow for the biggest purchase of their life.
Borrowers were able to borrow an estimated 21% less than they were able to before the rules came into effect, shaving off a good portion of potential debt for the country.
Canadian mortgage growth has been the weakest in 17 years, slowing down to 3.2% in October.
This slowdown suggests “there won’t be much upward pressure on Canadian house prices going forward, and it also suggests policymakers’ moves to calm years of runaway housing market growth in some markets have had an effect.”
Canadians borrow today with less of a risk, says Bank of Canada. The lending rules try to assure Canadians that they can indeed afford to take on the debt load of their choosing.
People carrying heavy loads of debt cannot get simple approval for a new mortgage anymore. The number of “deeply indebted borrowers” qualifying for new mortgages fell to 6% in this year’s second quarter, down from 20% in 2016.
“Deeply indebted borrowers” have more than 4.5 times their income in debt.
“What we were hoping to see would be a continuing improvement in the quality of the loans because what that does is, over time, put the economy on a more-solid footing to withstand whatever adverse developments that might occur,” said bank deputy governor Carolyn Wilkins.