New data on consumer debt has dredged up an old broker gripe: Regulators need to rein in the availability of unsecured debt and leave mortgage spending alone.
New data on consumer debt has dredged up an old broker gripe: Regulators need to rein in the availability of unsecured debt and leave mortgage spending alone.
“Consumer debt has gotten out of control; we’ve seen a lot in northern Alberta and B.C.,” Ray Macklem of Dominion Lending Centres The Mortgage Hub told MortgageBrokerNews.ca. “It’s very easy to obtain an unsecured credit card, lines of credit, things like that, and they seem to be the kinds of things that get people into trouble.”
Macklem is a B.C.-based mortgage broker and recent stats don’t bode well for his fellow British Columbians. According to data from TransUnion, his province has the highest non-mortgage debt average above all other provinces, at $38,682 compared to the Canadian average of $27,368.
And while brokers are frustrated by a government that seems to focus more on controlling “good” mortgage debt as opposed to out-of-control consumer spending, the truth is there is very little the regulators can do, according to one industry player.
“People on this forum and others have been calling for Flaherty to regulate the interest rates on credit cards for some time now, and I think that there is a misunderstanding of what can and cannot be done,” Paul Therien of Centum commented on MortgageBrokerNews.ca in late November. “The government can regulate mortgages because they always have had their finger in that pie.
“Housing is also a much more significant contributor to our economy, and given that housing is typically the largest expense for an individual, it merits greater scrutiny by both government and media.”
Still, there are potential measures that can be taken to help control this type of debt. Education is the key, according to one broker.
“I think Canadians could benefit from better financial education to help them understand the impact of carrying large amounts of consumer debt,” Jason Henneberry of Verico MortgagePal said. “For example, a $15,000 balance on a credit card or unsecured line of credit reduces a person's mortgage borrowing power by approximately $100,000.”
In many cases that debt is accrued by purchasing items that depreciate, such as furniture, according to Henneberry. And they have no idea how detrimental an effect carrying credit card debt can have on applying for a mortgage.
“That person often doesn't understand why they don't qualify for the amount of mortgage they are seeking; a more-informed borrower might think twice about that vehicle loan if they understood how it affects their purchasing power when it comes to buying their next home,” Henneberry said. “They could be so much better off financially by allocating their resources to creating wealth through savings or improving their equity by paying off mortgage debt.”
Read more: Are there disadvantages to paying off your mortgage early?
