From Wednesday's Globe and Mail Published on Tuesday, Jul. 20, 2010 7:27PM EDT Last updated on Thursday, Jul. 22, 2010 8:19AM EDT
Owe Canada. It’s not our anthem any more.
Crazy borrowings on lines of credit? History. The gotta-buy-now housing market? Toast. Credit card debt? Slowing down, too.
Many months ago, it was fashionable to question how Canada’s profligate borrowers would hold up when interest rates began to rise. Today, after the Bank of Canada raised its trendsetting overnight rate for the second time in the past two months, we're starting to see the answer.
In virtually all forms of borrowing, the rate of increase has slowed drastically. “I’ve been saying for a while that this is the most logical display of behaviour on the part of the consumer that I’ve seen in a long time,” said Benjamin Tal, senior economist at CIBC World Markets and an expert on household finances.
Mr. Tal’s take is that consumers ramped up their borrowing to take advantage of the historically low rates that were used by central banks around the world to fight the recession and global financial crisis. The likelihood of a rate rebound was widely discussed, and people took notice. When he looked at borrowing data for the first quarter of 2010, the rate of growth was down across the board.
“What we need to see now is a continuation of the softening in credit in order for people not to get into trouble,” Mr. Tal said.
This appears to be happening. The latest mortgage data has prompted him to forecast growth in outstanding mortgage debt of 3 to 4 per cent in 2011, down from 10 to 12 per cent in the first half of this year. He said growth in line-of-credit balances has fallen to about 7 per cent on an annual basis from 30 per cent two years ago. As for credit cards, growth in balances has fallen to 3 to 4 per cent from 12 to 14 per cent two years ago.
“All credit vehicles are slowing significantly,” Mr. Tal said.
This responsible attitude toward debt came through as well in the results of a survey by Genworth Financial Canada, which competes with Canada Mortgage and Housing Corp. to provide mortgage default insurance. It indicates that one-quarter of homeowners with mortgages have either made a lump-sum payment against principal or accelerated their payments in the past year.
There’s no better way to prepare yourself for the impact of rising interest rates on your mortgage than to make a lump-sum payment or speed up your pace of repayment.
With 27 years of direct mortgage lending experience, first with a major bank, then a local credit union and now as a Mortgage Broker, I have arranged mortgages on almost every type of property imaginable....even a 50+ ft fishing trawler!!