More than 70 per cent of Canadian homeowners are too stretched to cope with a payment hike, finds survey
Nearly three-quarters of homeowners in Canada would not be able to meet their mortgage payments if they were to increase by 10% a month, according to a survey released this week by Manulife.
This is despite the average mortgage debt across Canada standing at $201,000 – a figure that many Vancouverites would laugh at, but it’s a significant increase of 11% over the previous year.
In the Manulife Bank of Canada Debt Survey, which polled more than 2,000 Canadian homeowners, nearly one quarter (24%) of respondents said that they have been “caught short” in paying bills at some point in the past year. Just over half (51%) said they have $5,000 or less saved for financial emergencies while one in five respondents have no emergency savings.
Manulife reported that the problem was most acute among Millennial respondents, for whom mortgage debt is rising more quickly than Gen-X or Baby-boomers. Millennials also emerged as the least financially prepared to be able to make their mortgage payments in the event of an emergency or unemployment.
“The truth about debt in Canada is that many homeowners are not prepared to adjust to rising interest rates, unforeseen expenses or interruption in their income,” said Rick Lunny, president and CEO of Manulife Bank of Canada.
Bank of Mom and Dad
Almost half (45%) of Millennial homeowners said that they had received financial help from family when buying their first home. This compares with 37% of Generation X and 31% of Boomers – not surprising considering the price increases seen between generations.
Boomers do seem largely in a position to help their Millennial offspring out, however, as 61% reported that they no longer have any mortgage debt, and the average debt among the remaining 39% is $180K.
Still, many of those Boomers are relying on the equity in their homes for their personal wealth through retirement. Just over 40% of Baby Boomers said that home equity accounted for more than 60% of their household wealth and for one in five it makes up more than 80%. However, 77% of Baby Boomer respondents want to remain in their current homes when they retire.
“Many Boomers approaching retirement share the same lack of financial flexibility as Millennials,” said Lunny. “They want to remain in their current homes, but their home makes up a big part of their net worth. Instead of downsizing, or even selling and renting, homeowners in this situation could consider using a flexible mortgage to access their home equity to supplement their retirement income.”
