Households squeezed by rising debt servicing costs

Households’ debt service costs rose to 14.2% of incomes in the second quarter, the highest since 2008. The recent rise has been driven entirely by higher interest rates. Moreover, policy rate hikes over the past year have yet to fully feed through to borrowing costs and the Bank of Canada will probably raise interest rates twice more over the next six months. That will squeeze households further and push the debt service ratio up to a record high. That, in turn, will weigh on household spending growth and the housing market in the coming years.