Report says the number of households with debt bigger than 350% of their gross income has doubled to 8% since 2008.
OTTAWA — The Bank of Canada says the key vulnerability in the financial system of climbing household debt is increasingly concentrated among younger Canadians.
In its latest assessment of Canada’s financial health, the central bank says the most-indebted borrowers tend to be under 45 years old and usually earn less money, which would put them more at risk of income drops caused by an economic downturn.
The bank, however, says that while income growth is failing to keep pace with mounting mortgage credit, the central vulnerability of household debt is likely to fade as the economy picks up steam.
The report says the proportion of households with debt bigger than 350% of their gross income has doubled to 8% since the 2008 financial crisis thanks to an extended era of low interest rates.
Meanwhile, the share of Canada’s household debt held by these higher-risk borrowers is close to $400 billion after rising to 21% from the pre-crisis level of 13%. These households also tend to be in BC, Alberta or Ontario.
The bank’s semi-annual financial system review also points to particular weak spots caused by conditions like soaring house prices and risks such as a severe recession, a spike in unemployment and a prolonged period of low commodity prices.
© 2015 The Canadian Press