Survey Shows Majority Of Canadians Are Not Financially Prepared For An Interest Rate Hike

Even as 52 per cent of Canadians say they lack financial flexibility to quickly adjust in case there is a change in costs, a new survey portrait a rise of 11 per cent in the average mortgage debt the past year to more than $20,0000.

The Manulife Bank makes annual surveys on homeowner debt. Unfortunately, the most recent survey painted a ghastly picture of consumers who may not be ready for the next increase in interest rates that could be coming.

The bank’s chief executive, Rick Lunny says: “the survey shows that a large percentage of Canadians are not prepared for unexpected expenses”. “It’s interesting because it affects two segments- the millennial segment as well as the baby boomer segment”.

Millennial find it more difficult each day to break into the market because of the continuous rise of home prices across the country. The average price of a house across the country increased by 10 per cent in April from a year ago to $559,317.

Lunny said that the millennial segment owes more than any previous generation and are not prepared to meet unexpected expenses. They’re homeowners, their furnace could go, they could need a new transmission on their car.

The average baby boomer debt was $180,000, but 61 per cent had no debt at all, while on the other hand, the average millennial debt was $223,000, but 29 per cent of that segment of the population owes more than $250,000 and just 14 per cent of the population has no debt.

Lunny said baby boomers lack the financial flexibility in a different way in that a majority of their net worth is tied up in their homes. As they advance in years, they might not have the financial flexibility to meet their ongoing expenses.

As indicated by the survey, 41 per cent of baby boomers said home equity represented more than 60 per cent of their household wealth, and 21 per cent said it makes up more than 80 per cent. It said the average mortgage debt now stands at $201000, an 11 per cent jump from a year ago.

It will be interesting to know that some or most of the baby boomers debt are to help their children buy a home. But even at that, the millennial segment still owes an awful lot of money and they are not prepared if the cost of the mortgage went up 10 per cent.

This survey was conducted from Feb. 1 to Feb. 14, 2017 by Nielsen on behalf of Manulife Bank. The results are based on interviews with 2098 Canadians aged 20-69 with household income of $50000 or more.