As Canadians struggle to keep up with debt, most believe rate cuts won’t provide relief
Even as the Bank of Canada makes a second interest rate cut after lowering it in June, Canadians don’t expect future reductions to provide relief, according to a new survey.
The survey, conducted by CPA Canada and BDO Debt Solutions in June, followed the Bank's first interest rate cut in four years, and the results reveal that more than half of Canadians (52 per cent) doubt that lower rates will alleviate their financial strain, while 48 per cent are still reeling from the rate hikes of previous years.
“There will be ongoing consequences for the economy, even as the Bank of Canada continues to lower interest rates,” says David-Alexandre Brassard, CPA Canada’s chief economist. “If interest rates settle at three per cent in 2025, mortgage renewals up until 2027 could be impacted, that is five years after we first reached that level of interest rates.” The Bank’s recent moves saw a drop from the five per cent rate maintained since July 2023, to its current 4.5 per cent.
The survey found that 70 per cent of Canadians say they have not been impacted by June’s interest rate cut. If the rate continues to decrease, more than half of Canadians (52 per cent) expect it to have no impact on their debt load.
Lingering debt woes: The plight of younger Canadians
Rapid interest rate increases since 2022 to five per cent—after hitting historic low of 0.25 per cent in 2020—resulted in a high degree of financial uncertainty for Canadians.
When asked about this rate spike, 48 per cent of respondents reported negative impacts to their debt loads, with the most affected being Ontario residents (52 per cent) and Canadians from ages 35 to 54 (58 per cent). Meanwhile, more than half of respondents aged 55+ (57 per cent) said they felt no negative impact from the increases.
“Even with a reduction in interest rates, we seem to have reached a point where debt has become unmanageable for over half the population,” says Nancy Snedden, licensed insolvency trustee and president at BDO Debt Solutions. “On a brighter note, the survey reveals that the dedication to debt repayment remains a key financial goal for many.”
Paying down debt is an especially high priority among those aged 35-54 (35 per cent) meanwhile increasing savings (33 per cent) and buying a house (15 per cent) are the focus for Canadians under 35.
The bright side: Quebecers are more resilient
The survey found that 58 per cent of Quebecers reported the interest rate increases had no impact on their debt loads. The survey results seem to indicate Quebecers are fending off higher interest rates and higher cost of living slightly better than the rest of Canada, says CPA Canada’s Brassard.
“Consumer demand has remained stronger, which is reflected in more stubborn inflation within the province,” he says. “There are a multitude of factors at play in Quebec: slightly more affordable housing, an older population and a stronger growth in disposable income.”
Despite this rosier outlook, several Quebec residents (39 per cent) said that their debt loads were negatively impacted by the rate increases of 2022-2023.
As interest rates decrease, the top priorities for people across Canada are increasing savings and paying down debt, with both scoring 28 per cent in the survey. “It is very encouraging to see 56 per cent of the population focusing on improving their financial situation,” adds Brassard.
“We can also see that younger folks are less likely to have no financial priorities indicating that financial hardship brings along focus.”
Survey methodology
Leger conducted the Impact of Interest Rates on Canadians’ Personal Finances OMNIbus online survey from June 28 to July 2, 2024, among 1,521 randomly selected Canadians aged 18 and over.