Canadians love debt that gets sunk into ever rising property prices and banks and other lenders have been happy to provide. As long as rates only go down this is a pretty good situation, but what if rates were to go the other way one day?
Financial companies have been more-than-willing lenders. But there are several reasons why Canadians have been such enthusiastic borrowers.
Last week, new figures showed that consumer lending now totals more than $2 trillion, a new record. As we reported last week, for every dollar of Canadians’ disposable income, they owe almost $1.67.
From the point of view of Canadians, money has never been so cheap. But the rising cost of housing, especially in the country’s biggest cities, has also drawn people into taking on more debt.
But increasingly, there are signs the cycle of falling interest rates is coming to an end. Last week U.S. central banker Janet Yellen raised rates again, the second time in three months. This time, when she promises more rate increases to come, people seem to believe her.
Meanwhile, banks in Toronto’s overheated market warn of a bubble.
Already there are signs that the cost of consumer lending is on the rise. And small changes in rates make a big difference to consumers.
An RBC customer in Manitoba reports that the bank has just hiked the rate on his unsecured line of credit from 1.5 per cent above prime to 2.25 above. That 0.75 per cent increase will raise his borrowing costs by hundreds of dollars a year.
Rising rates are potentially good for banks and lenders who will see fatter margins, but Canadian with record high debt loads may see some difficulties if rates begin to rise.
Read the full article over at the CBC.