One-half of Canadians living ‘paycheck to paycheque’ as personal insolvencies rise 14%

The number of Canadians filing for personal insolvency keeps on rising, another sign that high interest rates are still taking a big bite out of household finances, experts say.

 

A total of 34,588 people across Canada filed for insolvency in the third quarter, a jump of 13.5 per cent over the same period a year ago, according to statistics from the Office of the Superintendent of Bankruptcy. In Ontario, there were 13,140 filings, a jump of 20.2 per cent. Business insolvencies rose 16.2 per cent over the last year nationally, and by 40.2 per cent in Ontario.

 

The biggest factor? Interest rates which are still high enough to cause financial distress, even though the Bank of Canada has started lowering them to kick-start the economy, said licensed insolvency trustee Andre Bolduc.

 

“Fifty per cent of households are living paycheque to paycheque right now. And when you don’t have any savings, you’re more vulnerable to high interest rates,” said Bolduc, chair of the board at the Canadian Association of Insolvency and Restructuring Professionals.

 

The Bank of Canada has already cut interest rates four times this year, bringing its key overnight interest rate to 3.25 per cent from a peak of five per cent.

But Bolduc noted that many Canadians renewed their mortgages when interest rates were close to their peak. Even those renewing over the next year, however, will face higher rates than when they last renewed.

 

“It won’t be as high as it was at the peak, but it will still be a lot higher than it was five years ago,” said Bolduc. “Those increased mortgage payments have to come out of somewhere.”

 

Rising unemployment is also contributing to rising insolvencies, Bolduc said.

 

“Life changes can really affect your financial situation. Divorce or separation, illness, unemployment. All of those can take a toll,” he said, noting that Canada’s unemployment rate has risen from a post-pandemic low of 4.9 per cent in July, 2022 to 6.5 per cent last month.

 

The Bank of Canada raised interest rates 10 times between March 2022 and last summer in a bid to wrestle inflation down to its two per cent target. Inflation peaked at 8.1 per cent in June 2022 as the Canadian economy opened back up from COVID-related restrictions. In September, Canada’s annual rate of inflation fell to 1.6 per cent, from two per cent the previous month.

The theory is that by making it more expensive to borrow money, consumers and businesses will spend less, driving down prices and slowing the economy.

 

Now, as the economy slows and inflation has been heading mostly downward, the Bank is taking the reverse approach, trying to stimulate growth by cutting rates.

 

Pedro Antunes, chief economist at the Conference Board of Canada, agreed that there’s more financial pain to come, noting that roughly 50 per cent of Canadian mortgage holders are set to renew next year.

 

“I don’t think the full brunt of these interest rates have been felt by a lot of households yet,” said Antunes. “There were so many mortgages taken on in 2020, or 2021. You could get a mortgage at 2 per cent. Even with rates coming down, when people go to renew, they’re still going to be paying four per cent or more.”

 

Still, Antunes noted, there was a glimmer of hope in the third quarter insolvency numbers — they actually fell slightly from the second quarter of this year, dropping 1.4 per cent.

 

“There are still risks,” said Antunes, but hopefully we’re seeing peak activity for insolvencies.”

 

 

 

This article was first reported by the Star