Canadian borrowers awfully close to the edqe, Studv warns E?Vtiuzzt 'sa u,<nt41 Hundreds of thousands would have problems with a small rate increase /l SEqarpt48K -Zaf,6 GAR'IY MARR. T0R0NT0 There are more than TOO,OOO Canadians who might be watching the next Bank of Canada decision very closely, because even a modest interest rate increase could push them over the financial edge. A new study from credit agency TransUnion shows that of t}re26 million credit-active Canadians in the country 7\8,OOO can't absorb a 25-basis point increase or theY wonlt have enough cash fl owto cov- er their debts. Raise rates one percentage point, something not likely to happen overnig;ht, and 971gOO Canadians end up in a cash crunch. The next interest rate announce- ment is notdueuntil mid-October but the consensus among econo- mists is there won't be a rate hike until the third quarter of 2017.That maybe part of the problem, since consumers have come to expect rates will never go up and are now borrowingbased on a prime lend- ing rate of 2.7 per cent. "I would say for five or six years interest rates have been so low, a lot of these consumers look OK beeause of the low rate environ- ment. This is one of the things we are looking at " said Jason Wang, director of research and industry analysis with Chicago-based Tran- sUnion. "If everything changes and interest rates are higher, and they have to pay more on a monthlyba- sis back to lenders, theymay not be able to handle (an increase)." The report looked at so-called super prime customers - the people withbest credit and scores in the 830-900 range - who make up the largest segment of the credit-holding population who can afford an increase of 25 basis points. Of super prime customers, TransUnion says a 25 basis .,point increase to interest rates would cause cash-flow trouble for 239,OOO. Only 1Ol,0O0 Canadians borrowingwith sub-prime ratingg in the range of 3OO-599, would face the same cash crunch under those circumstances. Wang said the super-prime customers are far more leveraged and therefore more vulnerable to an interest-rate increase. If rates rose one percentage point 298,000 super-prime customers would face cash-flow problems. On average, credit-active Cana- dians carried 3.7 credit products, TransUnion said. The study fo- cused on two major types of debt that carryvariable rates, including lines of credit and variable-rate mortgages. The message to consumers is to pay down debtbefore interest rates start to rise, while issuers need to look at their books. "Take a look at theig prime- and super-prime customers to see if they have a problem, because these are the people who will be surprised," Wang said. "We don't want creditors to be surprised." Laurie Campbell, executive director of Credit Canada, said high quality customers havebeen building up debt because they're attracted to low rates that never seem to rise. "There is an assumption that those with better income and good (credit ratings) are in good financial shape," Campbell said. "Itt not the case atall.We see people inour offices all the time that should be managingwell that are not due to a number of factors. One is over extension, they're biting offmore than they can chew." Financial Post We see people inour offices allthetime that shouldbe managing uelt thatarenotdue to anumber of factors. Oneis ouer extension, thegrebiting off morethantheg canchelD. Over-extended Canadians could end up in a cash crunch if interest rates rise, a study from credit agency TransUnion shows. rru-Dn ANDERIIN/FTLES

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Page 1: Canadian borrowers awfully close to the E?Vtiuzzt edqe ... fileawfully close to the edqe, Studv warns E?Vtiuzzt 'sa u,

Canadian borrowersawfully close to theedqe, Studv warnsE?Vtiuzzt 'sa u,<nt41Hundreds of thousands would haveproblems with a small rate increase/l SEqarpt48K -Zaf,6GAR'IY MARR.

T0R0NT0 There are more thanTOO,OOO Canadians who might bewatching the next Bank of Canadadecision very closely, because evena modest interest rate increasecould push them over the finan-cial edge.

A new study from credit agencyTransUnion shows that of t}re26million credit-active Canadians inthe country 7\8,OOO can't absorba 25-basis point increase or theYwonlt have enough cash fl owto cov-er their debts. Raise rates one per-centage point, something not likelyto happen overnig;ht, and 971gOOCanadians end up in a cash crunch.

The next interest rate announce-ment is notdueuntil mid-Octoberbut the consensus among econo-mists is there won't be a rate hikeuntil the third quarter of 2017.Thatmaybe part of the problem, sinceconsumers have come to expectrates will never go up and are nowborrowingbased on a prime lend-ing rate of 2.7 per cent.

"I would say for five or six yearsinterest rates have been so low, alot of these consumers look OKbeeause of the low rate environ-ment. This is one of the things weare looking at " said Jason Wang,director of research and industryanalysis with Chicago-based Tran-sUnion. "If everything changes and

interest rates are higher, and theyhave to pay more on a monthlyba-sis back to lenders, theymay not beable to handle (an increase)."

The report looked at so-calledsuper prime customers - thepeople withbest credit and scoresin the 830-900 range - who makeup the largest segment of thecredit-holding population whocan afford an increase of 25 basispoints. Of super prime custom-ers, TransUnion says a 25 basis

.,point increase to interest rateswould cause cash-flow trouble for239,OOO. Only 1Ol,0O0 Canadiansborrowingwith sub-prime ratinggin the range of 3OO-599, would facethe same cash crunch under thosecircumstances.

Wang said the super-prime cus-tomers are far more leveragedand therefore more vulnerable toan interest-rate increase. If ratesrose one percentage point 298,000super-prime customers would facecash-flow problems.

On average, credit-active Cana-dians carried 3.7 credit products,TransUnion said. The study fo-cused on two major types of debtthat carryvariable rates, includinglines of credit and variable-ratemortgages.

The message to consumers is topay down debtbefore interest ratesstart to rise, while issuers need tolook at their books.

"Take a look at theig prime- andsuper-prime customers to seeif they have a problem, becausethese are the people who will besurprised," Wang said. "We don'twant creditors to be surprised."

Laurie Campbell, executivedirector of Credit Canada, saidhigh quality customers havebeenbuilding up debt because they'reattracted to low rates that neverseem to rise.

"There is an assumption thatthose with better income and good(credit ratings) are in good finan-cial shape," Campbell said. "Itt notthe case atall.We see people inouroffices all the time that should bemanagingwell that are not due toa number of factors. One is overextension, they're biting offmorethan they can chew."Financial Post

We see peopleinour officesallthetimethat shouldbemanaging ueltthatarenotdueto anumber offactors. Oneisouer extension,thegrebiting offmorethanthegcanchelD.

Over-extended Canadians could end up in a cash crunch if interest rates rise,a study from credit agency TransUnion shows. rru-Dn ANDERIIN/FTLES