The big banks are asking Ottawa to cut back on the terms of mortgages they insure for a second time.
Gordon Nixon, chief executive officer of the Royal Bank of Canada, the country’s largest bank, said he’s not hitting the panic button yet over concerns that some consumers may not be able to repay their loans.
But “we are clearly at the limit,” he said in an interview. “You do not want significant growth in consumer debt.”
Low interest rates have enticed Canadians to borrow more than they could afford to otherwise, and many are now stretched. The average debt per household, including mortgage and credit card debt, hit a high this year of $96,100, as the debt-to-income ratio climbed to a record 146 per cent. Job losses or higher interest rates down the line could push consumers past their limit, resulting in bankruptcies and damage to the economy.
“We’re not in dangerous territory right now,” Mr. Nixon said. “But taking steps to ensure that we don’t have a problem is a prudent thing to do.”
Bankers shared similar fears with Ottawa in the fall of 2009. In February, 2010, Finance Minister Jim Flaherty announced measures designed to make it harder for mortgage borrowers to get in over their head.
Banks asking government to cut back on the cash cow that is no-risk taxpayer insured mortgages? Why would they do that?
Fairfax Financial CEO Prem Watsa is among the influential voices pointing to the impact of soaring debt on the broader economy. Not only are Canadians overleveraged, primarily with mortgage debt, low interest rates have prompted speculative buying that is artificially inflating housing prices, he said.
According to the latest statistics from the Bank of Canada, the banks were holding $497-billion in residential mortgage loans to consumers in September, up from $468-billion in January.
The good news is that those “Artificially inflated housing prices” are happening in Canada instead of in Vancouver.