In the first three months of COVID-19, the proportion of Canadians who have to repay decreases, but unexpectedly hides the wave of insolvency awaiting the emergence of an unexpectedly bright debt picture.
Statistics Canada reported on Friday that the debt to non-performing income ratio fell to 158.2 per cent in the three months between April and June, from 175.4 per cent in the first three months of this year.
That means Canadian families will have to pay 8 1.58 for every dollar they have to spend by the end of June. That ratio reached 177 percent in 2017 and remained stable in the 170 range until it plummeted this year.
While it is encouraging to think that Canadians are reducing their debt burden during the epidemic, bankruptcy trustee Scott Terrio told Hoys & Michalos that what is happening below the surface could be misleading.
Before the start of the pandemic in March, consumer bankruptcies have been growing at a two-digit rate since early 2019, as the system has fueled a low rate of debt through a decade, with Terrio people saying “bing” and going on the road to kick. “
Then like everything else, Bankruptcy verdicts starting March are pending. As part of it is that the courts are closed, it is difficult for borrowers to take legal action to get their money back.
But Huge wave of support programs Made by governments across the country, their design seems to have an impact on keeping people’s heads above water.
Although the record number of layoffs is a dent in earnings, most people who were in trouble before COVID-19 got some relief because they did not spend much.
“Suddenly, people don’t pay $ 2,000 a day in daycare for five months,” said Terrio, as the daycare closed and parents moved from home to work on a large scale.
In addition to government stimulus, One in every six Canadian homeowners with a mortgage Apply for programs offered by banks to defer payments or part of payments for up to six months this spring. But those programs will end in the coming weeks, and those bills will have to be paid.
“I’m worried they have significant debts and one of the spouses later stopped working,” he said.
“They took advantage of the postponement and benefits [but] That ride ends. “
Savings have also increased significantly
At the end of June, Canadians owed $ 3.3 trillion, including $ 1.5 trillion in mortgages and $ 779.4 billion in consumer debt, such as credit cards.
Statscon statistics show that the debt picture is changing very unevenly among different income groups.
By the end of June the lowest 20 percent had a revenue ratio of 281.7 percent, meaning they owed about $ 3 per dollar to spend. Those in the top 20 percent, meanwhile, have just $ 1.38 per dollar of non-renewable income they have.
That imbalance is why Terrio predicts that bankruptcy will return “with revenge” in the coming months.
“Once the courts are open you will find out how much your bank loves you,” he said.
‘Tsunami of guilt’
TD Bank economist Ksenia Bushmeneva found reasons for optimism in numbers.
“One of the major risks leading to this pandemic-induced recession is the high level of home loans in Canada, which could hurt the economy badly and slow the subsequent recovery,” she said.
“So far, the crisis seems to be better on the consumer side of the economy than initially expected.”
The service-to-debt ratio – the money spent on the debt burden – fell sharply to a record low of 14.54 per cent to 12.4 per cent, with Bushmeneva particularly heartbroken due to largely low rates.
In addition, the home savings rate – the percentage of non-renewable income that households save – rose from 3.9 per cent at the end of 2019 to 28.2 per cent in June, which she described as “eye-popping”.
But she is worried about what is coming out of the pipeline.
“Unprecedented federal government revenue assistance programs and financial institutions’ payment deferrals are critical to tsunami prevention and home finance protection,” she said. “However, more challenging times lie ahead.
“Crimes and consumer bankruptcy are set to rise later this year and in 2021.”