OTTAWA — The Bank of Canada says its concerns are mounting that households are piling on too much debt and posing what the central bank says is a key vulnerability to the economy.
In a new report, the Bank of Canada says many households have taken on large mortgages compared with their income, further limiting their flexibility to deal with a financial shock like the loss of a job.
The bank notes that total household debt has increased by four per cent since the start of the pandemic, picking up sharply since the middle of last year as the housing market started to heat up.
The Bank of Canada’s report says the boom may help the economy rebound in the short-term, but could lead to a future bust if households have to cut spending because of another downturn that would slow the economy.
It could also mean they fall behind on mortgage payments, see a drop their home value that would impact its use as a nest egg for retirement, or be unable to get a needed loan.
The bank’s latest review of the risks to the country’s financial system also highlights concerns about a too-soon withdrawal of pandemic aid for businesses.