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Canadian Household Debt-to-Disposable Income Ratio

Key Highlights

  • Interest rates fell to historically lows levels in 2009 and have remained relatively low since then.
  • As the interest rate fell, Canadian households increased borrowing.
  • In Q3 2019, Canadian households owed $1.76 for every $1.00 of disposable income earned.
  • Any increase in interest rates can make household debt unaffordable for many.

Canadian interest rates fell in 2008 in response to the onset of an economic recession.

The Bank of Canada’s Overnight Interest rate (which is the rate that influences changes in all interest rates in the Canadian economy) fell to a historic low 0.25 per cent in 2009.

Rates have fluctuated around historically low levels since then.

Household Debt-to-Disposable Income Ratio

Lower interest rates lead to reduced borrowing costs and an increase in borrowing.

Canadian households have increased borrowing following the lowering of interest rates which started in 2008.

The amount owed compared with the amount earned (debt-to-disposable income ratio) by Canadian households has increased since then.

In Q3 2019, amount owed by Canadian was $1.76 for every $1.00 of disposable income earned.

At the current debt level, any increase in interest rates will likely result in many households (including Peel households) unable to afford debt repayment.

This has been identified by the Bank of Canada as major financial and economic risk to the Canadian economy.