Households have more and more harm to their debt

Les ménages ont de plus en plus mal à leur dette

Photo: Elise Amendola, Associated Press
The risk of default has increased.

The rise in interest rates combined with escalating debts of canadian households is at work. Bankruptcies are on the rise, fuelling even an increase in the rate of delinquency.

The year 2018 has come to confirm the deterioration of the credit quality of consumers and households in an economic environment dominated by rising interest rates. The agency credit monitoring Equifax Canada has observed an increase in the delinquency rate in the fourth quarter, until then relatively stable for several years. On mortgages, the payment delays of 90 days or more, fell to 0.18 % at the end of 2018, an increase of 1.5 % year on year. Excluding mortgages, the rate was up 0.4 %, to 1.07 %. This trend reversal, albeit modest, reflects two quarters of the notorious progression of bankruptcy of consumers, who have grown by 15 % during the second half of 2018. “The surge in marginal rates of delinquency mask an underlying weakness. All indications are that this deterioration will be the norm by 2019, ” said data analyst Bill Johnston, Equifax.

By age group, the increased risk of default of payment was observed in the 65 years and older, with a delinquency rate rose by 7.2 % between the fourth quarters of 2017 and 2018. Follows the segment of 56-65 years (+ 0.4 percent). Also, an improvement has been observed in the younger age groups.

This reading comes from a cumulation of 1906 billion of total debt of individuals in the fourth quarter of 2018, an increase of 4.6 % compared to the corresponding quarter of 2017. Excluding mortgages, the average level of debt of consumers is $ 23 520 $, an increase of 3 %. In Quebec, the average debt stood at 19 438 $, with an increase of 1 %.

Question to further illustrate the increased difficulties Canadians face their debt, Equifax points out that the outstanding balance on the credit cards increased by 2.4 %, implying that they are more likely not to be able to pay the balance of their account at the end of the month. In the automotive sector, a slowdown in sales comes, in part, explain the small increase of 1 % loans of one fourth quarter to the other. “We saw a shift feel to the location, the higher interest rates coming to tighten the terms of financing for manufacturers,” says the agency.


The canadian Association of professionals in the insolvency and restructuring (CAIRP) also reveal a significant increase in the number of insolvencies filed by consumers and businesses between the months of January 2018 and 2019. “The number of companies that filed an insolvency file in January has increased by over 10.2 % compared to the previous year and 2.1 % compared to December,” she wrote, pointing out in particular the construction sector. Citing a reference world, the Global Insolvency Index, Canada is expected to show an increase of approximately 4% of the insolvency of companies this year, compared with 6 % globally.

WE see the impact of the increase in combined debt and rent money on the household. The number of Canadians who filed an insolvency file in January has increased by 7.1% compared to January 2018, of 11.6% compared to December, ” which emphasizes the negative consequences of the growing debt of households and higher interest rates “. Only Newfoundland and Labrador (7.9 %) and Quebec (-1,9 %) have rather shown a decline in this chapter between the two months of January.