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By Greg Quinn and Anahita Alinejad
OTTAWA (MNI) - Canadians are spending a record share of disposable
income on paying off debts even as interest rates remain around record
lows, government figures show.
The cost of interest and principal payments on consumer loans was
14.93% in the second quarter, just ahead of the 14.87% in the
first quarter. The ratio is the highest in Statistics Canada records
back to 1990, and has climbed from 14.39% in the second quarter of 2018.
Those costs remained elevated even as the ratio of household debt
to disposable income -- a barometer for policy makers of a possible
slump in consumer finances -- declined for third quarter from a record
The ratio of household debt to disposable ratio fell to 177.1% in
the second quarter from 177.5% in the first quarter. The measure peaked
at 178.3% in the third quarter of last year. Disposable income grew by
1.3% in the second quarter, faster than the 1% increase in household
debts such as mortgages and credit card bills.
The consumer debt buildup through a housing boom in Vancouver and
Toronto has drawn the attention of the Bank of Canada and lawmakers.
They have stepped in with new taxes aimed at curbing speculation and
tougher mortgage qualification rules designed to prevent families from
taking on too much debt. Today's report showed household debts climbed
to 101.3% of Canada's gross domestic product, just shy of the record
101.4% set at the end of 2016.
Bank of Canada Governor Stephen Poloz has said there are signs the
housing market is stabilizing and borrowers are benefitting from a
global drop in bond yields that has reduced the cost of renewing the
popular five-year fixed mortgage.
Household affordability has become an issue in campaigning for a
federal election on Oct. 21, with average prices for homes in Vancouver
and Toronto often feteching a million dollars. Prime Minister Justin
Trudeau on Thursday pledged to offer support for first-time home buyers
if his Liberal Party is re-elected.
Statistics Canada earlier this year published a paper saying that
comparing household debts to assets is probably a better indicator of
whether borrowers will get into financial distress such as missing a
bill payment. The ratio of houseohld debt to assets was little changed
at 16.9% in the second quarter, near the middle of its historical range
Consumer spending fueled by debt has led Canada's economic growth
over the last decade. While the housing and debt boom is a concern,
it has also been underpinned by record low unemployment and strong
--MNI Ottawa Bureau +1 613-314-9647; firstname.lastname@example.org