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With mortgages that were initially signed in the depths of the COVID pandemic now coming up for renewal, consumers are facing a shock to their household finances, said Equifax vice president Rebecca Oakes.

“Consumers are ending up with higher payment amounts in many cases, because the interest rates are so much higher,” said Oakes.

More of the money that used to go toward paying down credit card balances — or paying for your kid’s new braces or that vet appointment for your dog — is now going toward your mortgage or rent.

That, says Oakes, means less money to pay other things, including your credit card balance. For many consumers, particularly younger or low-income Canadians, that means any additional expenses wind up on a credit card.

“There isn’t an extra cash buffer left over. So if you have an unexpected expense, it’s likely a lot of that is going on the credit card,” said Oakes.

Pedro Antunes, chief economist at the Conference Board of Canada, agreed that high interest rates are taking a bite out of spending on everything else.

“People are paying so much more for their mortgages and rent, that at the end of the month, they just don’t have as much,” said Antunes. “People are saying ‘you know what? I don’t really have an alternative.”

It’s not likely to get better any time soon, said Oakes. If anything, it’s getting worse.

“The big thing we’re concerned about now,” said Oakes, “is unemployment levels. And again, when you look at younger consumers, they’re getting hit harder there too.” 

In July, Canada’s unemployment rate was 6.4 per cent, up from 5.5 per cent a year earlier. The unemployment rate for youth aged 15 to 24, however, was more than double the overall rate, at 14.2 per cent.

The financial stress is spreading slowly across different demographic groups, Oakes said.

“Going back 18-24 months, it was more low-income people. We’re now in the phase of the mortgage renewals causing some stress, and now unemployment’s starting to come in, particularly for younger consumers,” said Oakes, adding that the stress isn’t leaving one group for another.

“It’s kind of like the pockets are changing. But that doesn’t mean the stress has gone from the previous areas. It’s kind of working its way across,” Oakes said.

At the height of the pandemic, consumer debt actually fell for a while, Oakes noted. Federal and provincial stimulus programs, as well as mortgage and rent deferrals, gave Canadians the confidence to pay down their high interest credit card balances. Once COVID lockdowns ended, people started spending again.

“We saw a spending increase the last few years, but it’s stabilized,” Oakes said. “But what’s starting to grow that balance now is really just reducing payments. And that’s not a good sign. Typically, it’s an early warning sign of some stress coming through.”