Rising interest rates drive up debt and price compression for Albertans

Albertans continue to have among the highest levels of unsecured debt compared to other Canadians

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For Albertans who are among the most indebted in the country, the dramatic rise in interest rates announced Wednesday will only add to the inflationary pressures they are meant to tame, say those dealing with the hardest hit.

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Noting that the doubling of the Bank of Canada’s key rate is likely to be repeated soon, financial educator Mark Kalinowski said it would only add to the woes of Albertans struggling with debt and inflation.

“I’m a little worried because the cost of living has gone up dramatically for everything from food to fuel, and now the cost of borrowing is going up as well,” said Kalinowski of the Credit Counseling Society.

“People renewing their mortgage or buying a new car are going to see sticker shock.”

Albertans continue to have some of the highest levels of unsecured debt compared to other Canadians and many are pessimistic about their ability to repay it, he said.

That 0.5% rate hike — the biggest since 2000 — isn’t likely to stop inflation caused by commodity or product shortages, Kalinowski said.

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By March, that borrowing rate had already been raised by 25 basis points, with another rate change scheduled for June 1.

This is being done in response to an inflation rate that hit 5.7% in February – a three-decade high driven by the effects of climate change on crops, pandemic pressures and, more recently, the invasion of l Ukraine by Russia.

“People tell us ‘things cost more, my debt costs more and I don’t know how to pay it,'” Kalinowski said.

“If people weren’t getting their finances in order, now is the time to do it, whether it’s talking to a credit counselor or a bank trustee.”

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Although interest rate hikes can have a longer-term effect on inflation, low-income Calgarians are more likely to be affected in the short term, said Sue Gwynn, a Calgary activist with the group Poverty Talks!

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“I don’t know anyone who doesn’t have any sort of debt, and between that and the cost of food and utilities, it’s absolute madness,” Gwynn said.

“(Higher interest rates) must have an impact for anyone who renews their mortgage or has credit card debt – maybe not always immediately today, but all of these things will have an impact.”

Efforts to contain inflation have come far too late for many people who are struggling to pay their bills, especially the exorbitant cost of utilities, she said.

“It should have been done a year ago. . . The horse is already out of the stable,” Gwynn said.

According to the MNP Consumer Debt Index released last January, 44% of Albertans say they are $200 or a month away from being able to pay their bills, and 50% are concerned about their level of debt .

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Meanwhile, Equifax says that in the last quarter of 2021, Albertans had the highest average non-mortgage debt in the country, at $25,172 and at 1.26%, the highest delinquency rate.

Among major cities, Calgarians had the highest average debt, at $25,082.

The “really dramatic” rise in interest rates will make things more expensive for home borrowers who will hopefully be spared similar hikes in the coming months, said Don Kottick, president and chief executive of Sotheby’s International Realty Canada.

“We’re hoping the Bank of Canada won’t be too ambitious in its rate announcements going forward, hopefully they’ll be more progressive,” he said, adding that those with variable mortgages were watching closely. interest rates.

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“It’s unlikely to come as a shock to them. . . A lot of these mortgage increases have already been factored into people’s borrowing, but you’ll still see people pulling out of the market or adjusting what they can afford.

Rising rates could see those with an average variable mortgage pay $50 to $60 more per month, real estate agent Len T. Wong said.

“It will have more impact on low-end buyers or first-time buyers, or change their qualification,” he said.

The overall effect of the Bank of Canada’s decision should be less in Calgary, as the real estate market is more influenced by buyers from outside the more expensive cities paying cash for homes.

Buyers from markets like Greater Vancouver and Toronto now make up 30-40% of Calgary buyers, he added.

But rising rates will likely entice other potential buyers to make a purchase rather than risk their 90-day holds expiring and their mortgage payments rising due to rising interest rates and prices, Wong said. .

“People sitting on the fence will have to buy, it’s going to pick up from the panic but, after that, I think you’ll see the market calm down,” he said.

Calgary single-detached home prices have already risen 20 to 25 per cent since January, Wong said.

[email protected]

Twitter: @BillKaufmannjrn

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