Nearly One Million Canadians May Struggle When Interest Rates Rise

TransUnion found that the large majority of Canadians would not be materially impacted in the near term by an interest rate increase. However, more than 700,000 consumers could struggle with their finances even with a ¼-point hike, and up to one million borrowers may not be able to absorb the increase in their monthly payments if interest rates rise by 1 percent.

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Nearly One Million Canadians May Struggle When Interest Rates Rise

TransUnion found that the large majority of Canadians would not be materially impacted in the near term by an interest rate increase. However, more than 700,000 consumers could struggle with their finances even with a ¼-point hike, and up to one million borrowers may not be able to absorb the increase in their monthly payments if interest rates rise by 1 percent.

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We estimate that 27% of consumers are exposed to a rate increase

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56% of exposed consumers would have a payment shock < $10 under a 25 bps rate increase

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Jason Wang

The size of the monthly payment shock is only one side of the equation. For some, a $50 increase in their obligations may simply be managed by forsaking a couple of restaurant dinners and eating at home, while for some others, this may mean they would not be able to fill their gas tanks to get to work. So we need the other side of the equation: comparing the payment shock with consumers’ available cash flow.

Jason Wang, TransUnion’s director of research and industry analysis in Canada

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Number of consumers (in thousands) whose cash flows may not be enough to offset a payment shock

Risk Segment (Score) Under a ¼-point interest rate increase Under a 1-point interest rate increase
Super Prime (830 – 899) 239 298
Prime Plus (780 – 829) 112 163
Prime (700 – 779) 134 193
Near Prime (600 – 699) 132 184
Subprime (300 – 599) 101 133
Total 718 971
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Based on this study, we recommend lenders evaluate their own portfolios in a similar manner to determine who might be vulnerable to a payment shock among their customers, and work with those customers to ensure their accounts remain in good standing. This is a key point of the study—to understand and measure the size and magnitude of the potential impact­—so that both consumers and lenders can be better prepared.

Jason Wang, TransUnion’s director of research and industry analysis in Canada

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