With Bank of Canada interest rates expected to rise this year, more than a third of Canadians report that the impending hike could push them into bankruptcy. New survey results published by bankruptcy consultancy MNP LTD revealed that a staggering 35% of Canadians share this same concern.
In March 2020, the Bank of Canada lowered its rate to an all-time low of 0.25%, giving many Canadians, especially first-time home buyers, the financial opportunity to enter the real estate market. But after nearly two years of low rates, an increase is expected sometime in 2022.
“As we approach what will likely be the first of several interest rate increases over the coming year, more and more Canadians are worried about how they will fare,” he said. said Grant Bazian, President of MNP LTD. “The most vulnerable are those who have taken out credit to get by and are unable to repay the debt. The extra costs of servicing debt come at a time when many Canadians are already finding it less affordable to feed their families or pay for things like housing.
Younger Canadians were much more likely to report potential problems with bankruptcy, with 49% of those aged 18 to 34 saying that rising rates could push them into bankruptcy. Among those aged 35-54, that number fell slightly to 41%.
“Many young Canadians who have not yet paid off their debts on major expenses such as tuition, a car or a house could be more negatively affected by rate hikes than Canadians over 55,” Bazian said. “Canadian households struggling with debt aren’t the only ones worried about the impact of rising interest rates. The rising cost of living is likely to make even those who are more financially secure feel uneasy about the impact of rate hikes.
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Just over half of Canadians say they are concerned about their ability to pay off their debts, and many find that aspects of their daily lives have become less affordable over the past year, including food or family, clothing and other household necessities, transportation, and housing. An overwhelming 81% of respondents said they would be more careful about how they spend their money with rising interest rates.
“It’s promising to see that some Canadians are taking note of the chatter surrounding impending interest rate hikes and adjusting their mindset accordingly,” said Bazian. “But a lack of financial literacy also impacts our findings, as we know that many Canadians don’t understand how interest rate hikes will affect their personal financial situation.”
In fact, 25% of Canadians said they did not fully understand the impact of interest rates on their financial situation.