Almost half of British Columbians are concerned about the increase of interest rates and their ability to re-pay their debts.
According to a survey done by Canada’s largest insolvency firm, MNP LTD., one in three of the same British Columbians say they’ve already felt the aftershock of the interest rate increase in September.
The Bank of Canada made this increase from 0.75 to 1 per cent for Canadians who already have debt with mortgages and lines of credit, as well as for prospective borrowers.
Lana Gilbertson, a Vancouver-based licensed insolvency trustee with MNP LTD., says people may have to re-work their budgets.
“It’s clear that people are nowhere near prepared for a higher rate environment. The good news is that there seems to be an acknowledgement now that rates are going to climb. This might make people reassess their spending habits – especially using credit,” she said in a release.
The survey found that even though British Columbians claim to be down an average $186 after bills and debt payments due to the increase, seven in 10 believe they have a solid understanding of how these rate increases impact their financial situation.
“To get a clear idea of whether or not you can afford your debt as rates move up, you have to stress test your budget at different interest rates to see if you can handle higher borrowing costs. Examine where you can make changes to absorb a higher interest rate,” said Gilbertson.
Six unpredictable scenarios were used to ask British Columbians how confident they were in their ability to cope with an increase in fees without an increase in debt. In either scenario, fewer than half of British Columbians are confident in dealing with unexpected expenses, while four in 10 don’t even feel confident they will be able to cover their expenses in the next 12 months without going into further debt.
Two in 10 British Columbians expressed concern that rising interest rates could move them towards bankruptcy.
Further findings from the survey say that compared to other age groups, millennials are the most likely to be feeling the effects of interest-rate increases (40 per cent). Lower income earning Canadians express the most concern towards rising interest rates, and concern about rising interest rates triggering a move toward bankruptcy is significantly more pronounced in Alberta (37 per cent), followed by Quebec (34 per cent), Atlantic Canada (32 per cent), Saskatchewan and Manitoba and Ontario (23 per cent), and BC (22 per cent).