Larger mortgages a by-product of income growth, low interest rates

Larger mortgages a by-product of income growth, low interest rates

A prolonged regime of low-interest rates along with a steady trend of rising incomes have more than doubled the amount that Canadians are able to borrow for their home purchases, according to the latest report by a public policy think-tank.

In its newest study titled “Interest Rates and Mortgage Borrowing Power in Canada”, the Fraser Institute stated that from 2000 and 2016, interest rates decreased from 7.0 to 2.7 per cent, while household income rose by 53 per cent nationwide. These developments have increased the maximum size of mortgage homebuyers can qualify for by 53 per cent.

In turn, these trends might have contributed to the prevailing environment of elevated housing prices in metropolitan markets nationwide.

“Increased borrowing power, brought about by falling interest rates and rising incomes, is potentially the most overlooked and least understood factor influencing home prices across Canada,” Fraser Institute president Niels Veldhuis said.

Mortgage-borrowing power in Calgary increased by a staggering 161 per cent, the greatest nationwide. Meanwhile, Vancouver saw a 118-per-cent growth in this metric. Montreal posted 115 per cent, and Toronto saw a 100-per-cent rise.

“This increase in borrowing power — in simple terms — means that an average Canadian family, dedicating the same share of their income to monthly mortgage payments, can afford a mortgage that’s more than twice as big now as it would have been in 2000,” Veldhuis explained.

Interested parties can access the full study here.

 

Source: MortgageBrokerNews.ca by Ephraim Vecina

Tagged , , , ,

Six figure income needed to buy almost any GTA home: report

A house for sale near Islington Ave. and the Queensway in a May 16 file photo. It takes a household income of $200,663 a year to afford the average detached Toronto house, according to a report from TheRedPin brokerage.

As the cost of Toronto-area housing rises, so do the financing challenges for young adults. Report says $200,000 a year is the average income needed for a detached house in Toronto.

It takes a six-figure income to afford virtually any Toronto area home — even a condo — and that expense is presenting a considerable financial challenge to an important cohort of millennial consumers.

Separate studies from two real estate companies on Thursday paint pictures of the high income requirements of affording a home, and of the housing aspirations of Canada’s “peak millennials” — adults 25 to 30.

It takes a household income of more than $200,000 a year to carry the $1.15 million cost of the average detached house in the Toronto region, according to a report from TheRedPin brokerage.

Even the average condo apartment, costing about $511,000, requires an annual income of $92,925 to afford a $1,933 monthly mortgage, plus taxes, utilities and condo fees, according to the report.

Meantime, 59 per cent of those aged 25 to 30 in Ontario would like to own a detached house in the next five years, but only 30 per cent think they will be able to afford one, according a new Royal LePage report based on findings by Leger research.

According to TheRedPin, buyers need more than $150,000 a year to cover the cost of a home in half of 22 Toronto area municipalities.

The average Toronto home price, $864,228, is affordable to buyers with an annual income of $147,750 — though that average may be skewed lower by the large number of condos on the market.

The most expensive real estate in the region is in King Township. Buyers there need $264,000 a year to afford the monthly mortgage of $5,883 and other expenses for an average home price of $1.6 million.

In Oshawa, an annual income of $108,773 is enough to afford the average home price of $552,268.

TheRedPin study averaged home prices over the first seven months of the year, and assumed a 20 per cent down payment and a 2.99 per cent mortgage, amortized over 25 years. The income requirements took into account the areas’ average utility costs and property taxes and estimated condo fees based on a 900-square-foot condo townhouse and a 750-square-foot apartment.

 

 

Matching home prices to income levels gives buyers a more precise picture of what they can afford, said the brokerage’s Enzo Ceniti.

“It can be hard to grasp exactly how much you need to earn to be able to invest in a home. Information about home prices increasing or decreasing by a certain percentage isn’t as relevant or as personalized,” he said.

Drew Rankin, 29, is part of an age group that will grow by 17 per cent in Canada by 2021. He is among the 35 per cent in that cohort that already own a home, according to a report from Royal LePage.

Like 25 per cent of his contemporaries, Rankin and his girlfriend had help from family with the down on the one-bedroom-plus-den he had been renting near King St. and Spadina Ave. for about $465,000.

The 700-square-foot unit had the layout and location Rankin and his girlfriend wanted.

“In terms of where our mindset was, the lifestyle was top of mind, accessibility to friends, restaurants, even work. Sports, concerts, everything is right there,” he said.

But the condo isn’t big enough to raise a family.

“I grew up in London, Ont., in a middle-class neighbourhood with a yard and I don’t necessarily view that as an attainable lifestyle for me (in Toronto), at least not in the next 10 years,” said Rankin.

People in their late 20s face significant affordability barriers compared to their parents when it comes to housing in Toronto, said Royal LePage CEO Phil Soper. While cities have the best employment prospects for young adults, they are also the most expensive property markets.

The company’s report, he said, “is either a sobering insight into the challenges young people will face as they try to build homes and families or it’s a really optimistic view of Canadian economics. Two thirds of people say they’re going to have a difficult time buying a house because of affordability but nearly all of them want one — 87 per cent,” he said.

“More adults in Ontario than anywhere else in Canada hope to own a home in the short-term even though it’s the most expensive place in Canada to own a home,” said Soper.

Condo owner Rankin thinks Toronto real estate offers good value “relative to other global centres.”

“I have a lot of friends in New York,” he said, “and that’s a totally different scenario.”

Source: TheStar.com By 

Tagged , , ,

Home sellers struggling with closing complications after big chill hits market

Realtor Peggy Hill, of Keller Williams, said house closings have been stalling since the end of June. Barrie home prices may not be as high as some closer to the city, but the drop has been precipitous.

Formerly frenzied buyers are reconsidering purchases made in the heat of the market.

Barrie teacher Cheryl O’Keefe doesn’t know how she would have survived the stress-induced sleepless nights of July had school not been out for the summer.

O’Keefe is among Toronto region homebuyers and sellers who got caught in the spring real estate downturn.

When the sale on her house finally closed a month past the originally agreed-upon date, it was the end of an expensive nightmare for O’Keefe.

Others who sold their homes in this year’s once frenzied real estate market, are still struggling to complete their transactions.

Lawyers, realtors and mortgage brokers report a surge in calls from distressed sellers whose buyers purchased in the heat of the market, only to find that the subsequent drop in the home’s value is more than the cost of walking away from a deposit.

Others, who bought unconditionally, have discovered they can’t get the financing to meet their purchase obligation. In some cases, the bank appraisal has come in at a value below what a purchaser agreed to pay, leaving the buyer scrambling to make up the difference.

O’Keefe’s real estate agent, Peggy Hill of Keller Williams, says closings have been stalling since the end of June. Barrie home prices may not be as high as some closer to the city, but the drop has been precipitous.

“Our average price for a home in Barrie is $471,822 for July. In March it was $570,199. We’re talking about a $100,000 difference,” she said.

That is still $40,000 above the average price of July 2016. But back then, 208 of the 260 homes listed sold. “This July we have 201 sales so the sales are still there but with 683 active (listings),” said Hill. “That’s the real picture.”

The GTA-wide picture is similar. When the regional market peaked in April, the average home price — including every category from condos to detached houses — was $919,449. By July, it had fallen to $746,216, although prices were still up 5 per cent year over year.

There were 9,989 sales among 11,346 active listings in July of 2016, according to the Toronto Real Estate Board. This July, listings soared to 18,751 listings, with only 5,921 sales.

O’Keefe had lived in her bungalow for only about two years when she decided to sell it in February, about the time property prices were peaking. Her basement apartment was standing empty and she wanted to downsize.

The real estate frenzy in Barrie mimicked Toronto’s and most of the 43 showings of O’Keefe’s house were, in fact, people from Toronto.

Like many homes at the time, O’Keefe’s sold in about a week for more than the listed price. The buyer put down a $25,000 deposit and requested a longer-than-usual four-month closing date of June 28.

“That was fine. It just gave me more time to do what I had to do,” said O’Keefe.

What she had to do was find a new home for herself in the same fiercely competitive market. She lost a couple of bidding wars and turned her back on a century home she loved because she knew it would go at a price she could never justify.

When she happened on an open house that fit her needs, O’Keefe bought it with a May 28 closing — a month ahead of when her own home sale was to be finalized. She arranged bridge financing to cover both mortgages for that month.

It all looked good on paper. But as the spring wore on, O’Keefe grew uneasy. The buyers of her house had not requested the usual pre-closing visit. Usually, excited new owners want a look around.

O’Keefe got her realtor to call. No response.

A week from closing, she had still heard nothing. At 4:50 p.m. on closing day, her lawyer talked to the purchaser, who admitted he was having difficulty with the closing.

By then, O’Keefe had been living in her new place a month and was paying two mortgages.

She agreed to extend the closing to July 14. When that didn’t happen, O’Keefe agreed to a second extension to July 31. The date came and went. Finally on Aug. 2, her lawyer called to say the buyer closed.

“Every step of the way everything that could be a headache has been a headache,” she said.

O’Keefe’s realtor says that so far, in her office, even problematic closings have been finalized. But some have been disappointing.

“There have been deals where we’ve had to take less commission. The seller had to take less money to make it close because at that point they’re euchred.

“It’s usually $40,000 to $50,000 because of our price point. In other areas I know it’s in hundreds of thousands of dollars,” said Hill, referring to areas such as Richmond Hill, Newmarket and Aurora, also hard hit by the market’s downward slope.

Some buyers have requested extensions on new home purchases because their old places didn’t sell, said Hill.

“That’s understandable,” she said. “In March, you wouldn’t dare go in with an offer conditional on the sale of a home. The problem is, in April, when all hell broke loose, everybody started putting their houses on the market fearing they had missed the top.”

Many have arranged bridge financing and moved on. But others haven’t been as fortunate, said Toronto lawyer Neal Roth.

He has been getting about five calls a week since mid-May from home sellers struggling to close on transactions.

“There is this horrendous domino effect going on where people in the spring were rushing into the market for a variety of reasons, committing to prices that in some instances were well beyond their means,” he said.

Most of his callers represent one of two scenarios.

First, there’s someone paid $1.5 million for a house that has since become worth $1.4 million, so they want to get out of the purchase.

“The other type of person says, ‘The bank promised me 60 per cent financing. Now that I’m at $1.5 million I should still get the same 60 per cent, not realizing that you have to come up with the 40 per cent of your own cash, or that the bank said 60 per cent when you were at $1.2 million, not $1.5 million,” said Roth.

While he thinks some sellers got greedy and some buyers should have been more careful, he hasn’t encountered anyone who got caught playing the property market.

“They’re all average people. None of them have been speculators as far as I know,” he said.

It’s not uncommon for mortgage brokers to hear from home buyers struggling with financing, said Nick L’Ecuyer of the Mortgage Wellness Group in Barrie

“But what we’re getting now is people who are in sheer turmoil. They don’t know what to do at all,” he said.

Some sellers, who planned to use their equity to put down 20 per cent or more on another home, don’t realize they can’t get bridge financing from a bank if they don’t have a firm purchase agreement on their old house.

Then there’s the hard truth that the house they’re selling isn’t likely to go for as much as they expected earlier in the year.

They can put down just 5 per cent and apply for a government-insured mortgage, but that’s more complicated and costly, said L’Ecuyer.

The Appraisal Institute of Canada doesn’t have statistics on the number of lender-commissioned appraisals that come in short of the agreed-upon price of a home.

But based on anecdotal accounts, it’s happening more now in the GTA, said institute CEO Keith Lancastle.

“Any time you go into a situation where you make an abrupt change from a seller’s market to a buyer’s market — where you see a slowdown for whatever reason — you can encounter this situation,” he said.

The role of an appraiser is to provide an unbiased opinion of a property’s value at a given point of time.

“A heated market does not automatically translate into a true market value. When you take away the heat, all of a sudden it settles down into something that is perhaps more reflective of what true market value is,” said Lancastle.

He says he’s still surprised by how emotional what is routinely now a million-dollar home buying experience can be.

“It’s arguable that mortgage lending should not be underwriting that emotion and that notion of a sober second thought is really important, not only for the purchaser, but also for the lender,” he said.

Buyers tempted to walk away from a deposit need to realize that they may still face a lawsuit, says L’Ecuyer. If you bought a house for $500,000 and decided to forfeit the deposit, and the seller gets only $450,000 from another buyer, you can be sued for the difference, he said. There is also the possibility of being sued by a realtor who isn’t getting a commission, and for additional legal and carrying costs.

Roth said there are people who don’t even realize that when they back out of a sale, their deposit is automatically lost.

O’Keefe believes that because she priced her home on the low side, it hasn’t lost any value. “You start talking to people and this is happening to so many,” she said. “I’m lucky that my house closed.”

Source: Toronto Star – 

Tagged , , ,

Commentary: Supply not the main factor in Toronto’s housing woes

Commentary: Supply not the main factor in Toronto’s housing woes

While various quarters have cited supply scarcity as a central driver in Toronto’s long-running housing affordability issues, latest census data actually belies that notion, according to a Bloomberg analyst duo.

In their latest piece, markets observers Erik Hertzberg and Theophilos Argitis argued that “the most important question remains the extent to which speculation is driving demand.”

“Ideally, fundamentals such as demographics and employment are at play, and the price gains reflect natural household growth getting ahead of supply. If that’s true, the market should eventually stabilize once new supply kicks in,” Hertzberg and Argitis wrote. “A situation where speculators are bidding up prices would be much more problematic.”

“Canada’s 2016 census, which the statistics agency is releasing piecemeal this year, is providing some insight into the debate. The results: supply may not be the big problem many people thought it was.”

The data revealed that between 2011 and 2016, the total number of Toronto households increased by 146,200 (up to 2.14 million). To compare, the number of newly completed homes stood at 175,825 projects.

“In other words, supply of new houses exceeded real household demand by almost 30,000 over those five years,” the duo stated. “That throws cold water on the argument — voiced particularly by the industry — that the city’s affordability crisis won’t be resolved unless the government introduces measures to help increase supply.”

More importantly, Toronto is rapidly running out of buildable space, “evident in census data that show its population density has surpassed 1,000 people per square kilometre for the first time ever, another factor that should continue supporting prices for detached homes.”

Source: Mortgage Broker News – by Ephraim Vecina15 Aug 2017

Tagged , , , , , ,

Indebted seniors among Canada’s most at-risk sectors

Indebted seniors among Canada’s most at-risk sectors

 

Indebtedness among Canada’s elderly population is on the rise, according to academics and financial experts at an international conference at Ottawa’s Carleton University last week.

Contributing to this trend—not just in Canada, but worldwide as well—are multiple pressures that include easy credit, unreliable pension plans, divorce among seniors, unmonitored spending by people with dementia, and financing the needs of younger family members.

Compounding the issue is a similar growth in the number of people in late middle age who are quitting employment or taking on even greater debt, either to care for their aging parents or to help their adult children buy their own homes.

“There is the worldwide phenomenon of older people who go into debt to help their children,” Carleton University School of Public Policy and Administration professor Saul Schwartz said, as quoted by the Ottawa Citizen.

Earlier this year, a global survey commissioned by HSBC found that 37 per cent of young Canadians who currently have their own homes used the “Bank of Mom and Dad” as a source of funding. Meanwhile, 21 per cent of millennial home owners moved back in with their parents to save for a deposit.

Schwartz, who was one of the conference’s organizers, added that Canadian seniors suffer from a lack of source that provides impartial advice.

“You can talk to your bank. But if the advice is free, it’s probably not unbiased,” he explained.

A study conducted by Equifax Canada and HomEquity Bank last year uncovered that 16.5 per cent of people aged over 55 were carrying mortgages. The average mortgage balance in this demographic swelled from $158,000 in 2013 to $176,000 in 2015.

Bankruptcy trustees Hoyes, Michalos & Associates Inc. have warned that seniors were the fastest-growing risk sector for bankruptcies.

“The share of insolvency filings for debtors aged 50 and over increased to 30 per cent in our 2015 study compared to 27 per cent in 2013,” the Ontario-based firm warned, adding that on average, debtors aged over 50 held unsecured debt of over $68,000 (over 20 per cent higher than the average debtor).

 

Source: Mortgage Broker News – by Ephraim Vecina15 Aug 2017

Tagged , , ,

Buyer who walked away from real estate deal ordered to pay $360K

 

The sellers of this rancher in Surrey's Newton neighbourhood accepted a no-subjects offer for $1,260,000 in May 2016, but after the buyer walked out on that deal it took months to sell, and they only got $910,000.

The B.C. Supreme Court has ordered a buyer who walked away from a Surrey, B.C., real estate deal last summer to pay the sellers more than $360,000, or six times his original deposit.

The ruling puts the would-be buyer on the hook for the difference between the contract he signed — for $1,260,000 — and what it eventually sold for after the homeowners failed to find another buyer to match the initial high offer.

The original deal was struck in May 2016, a month that saw record-breaking frenzy in the Vancouver-area real estate market.

The sellers, who were downsizing to a condo, accepted a no-subjects offer with a $60,000 deposit to buy their single-storey rancher in Surrey’s Newton neighbourhood, according to the court ruling.

But by the closing date, Sept. 1, 2016, the buyer walked away.

Court documents don’t say why the deal wasn’t completed, and the buyer’s lawyer won’t comment on his client’s reasons.

But that summer a key factor changed in Metro Vancouver’s real estate market: the B.C. government brought in a 15 per cent property transfer tax on foreign nationals buying real estate in the region, and the seller’s realtor blames that for the lower sale price.

Forest of for sale signs in Vanouver BC real estate

Sales cooled in the Metro Vancouver real estate market after the province introduced a 15 per cent foreign buyers’ tax on Aug. 2, 2016. (Christer Waara/CBC)

Market ‘changed significantly’

On Sept. 2, the day after the deal wasn’t done, the sellers filed a lawsuit against the would-be buyer, and soon listed their property again.

But their new agent, John Massullo, told them it wasn’t likely they’d get a price anything like the May deal, according to court records.

“The real estate market in the Lower Mainland had changed significantly since [the seller] entered into the contract with [the buyer], in particular because the B.C. government had passed the foreign buyers’ tax,” the lawyer told his client, according to Master Leslie J. Muir’s judgment.

Despite months of showings, professional photos, and several price drops, it took another five months to sell, for the much-reduced price of $910,000.

“Although this offer was less than I had expected when I listed the property for sale, the market remained soft,” said Massullo in an affidavit.

The precise impact of the foreign buyers’ tax remains unclear. Sales did slow after the tax’s introduction in August 2016, but benchmark prices never saw anything approaching the 28 per cent price drop on this property.

Nevertheless, the default judgment awards the sellers the $350,000 price difference, plus about $10,000 in carrying costs for the property over the five months, including utilities, property taxes and hot tub chemicals.

The buyer didn’t respond in time for the court to hear his side of the case, and retained his current legal counsel just days before the judgment.

He can apply to overturn the judgment, which he plans to do, his lawyer said.

“Our client is applying to set aside the default judgment, and he wants his day in court to be heard on the merits,” said Jasdeep Aujla.

Aujla declined to speak on the substance of the case before it is heard in court.

‘Difficult’ experience

The sellers’ lawyer, Andrew Morrison, says the experience has been “difficult” for his clients who are an elderly couple.

He says the husband only chose to sell the family home after his wife suffered health complications and needed more care.

They are, however, prepared to go back to court if needed.

​​Even if the the legal case is settled, Morrison says collecting a payment as large as $300,000 could drag on for years.

He hopes other buyers learn from this case that as soon as a real estate contract is signed, they are liable for the deposit regardless of whether the seller can get more or less than the agreed upon price at a later date.

If they get less, much like this case, they could be on the hook for the difference and any damages incurred.

Source: CBC.ca –  Lisa Johnson,  Posted: Aug 03, 2017 5:00 AM PT

Debt horror stories are ‘the new normal’ in Canada

On any given day now you can expect to hear at least one economist, public official or financial commentator express grave concern about the mountain of debt Canadians now carry. The bloated debt loads of Canadian households has become a pervasive topic in media. But for all the attention the subject has received, it’s a safe bet that most people still cling to very clichéd notions that only so-called “deadbeats” ever hit the debt wall. Nothing could be further from the truth. The reality is Canadians would be shocked if they could peer into the private financial lives of many of their closest neighbours and friends.

As a licensed insolvency trustee firm, our practice is on the front lines of Canada’s household debt binge and the bad personal finance habits that ensnare so many people. And what we see every day is that the majority of those grappling with serious debt trouble are the most typical individuals and families you could imagine.

Here is just a sample of recent files that have crossed our desks: A staff accountant with multiple lines of credit, several maxed-out credit cards, a big mortgage, a significant home-equity line of credit (HELOC) and two leased luxury cars; a TTC driver with two mortgages and $100,000 in unsecured lines of credit; a teacher with eight payday loans and a senior financial analyst at a chartered bank with seven credit cards, all carrying high balances. I could go on and on.

Those disturbing financial cases are no longer the extreme end of the spectrum that they were at one time. They are the “new normal” in our trustee practice. The real horror stories are far worse, albeit less frequent.

The normalization of excessive debt is reflected in the data that Statistics Canada regularly releases. The household debt-to-income ratio now stands at 169.4, up 23 per cent from a decade ago, and on par with what the U.S. saw at the peak of its housing bubble. Of course, such figures are averages. According to the Bank of Canada, close to half of all high-ratio mortgages originated in Toronto were to borrowers with loan-to-income ratios in excess of 450 per cent.

A growing number of the clients we see have all the trappings of a middle class lifestyle—they’re gainfully employed, own a home and from the outside seem fiscally responsible—but it’s built on a foundation of debt and bad financial decisions. Many cases involve large tax arrears, such as a real estate broker who owes $383,000 to the Canada Revenue Agency in unpaid income tax. Others involve failed businesses. Then there are the frequent cases where financial companies inexplicably lend vast sums to underemployed people, even as their debt loads balloon out of control—in one case, a senior who emigrated to Canada 15 years ago, had never worked and been on a very low disability pension since shortly after arriving, owed more than $200,000 in credit card debt.

While the causes for these horror stories are varied and obviously complicated, there is almost always a common detail: Most clients in significant debt trouble today would not be in that situations had they simply funded their lives by cashflow instead of credit.

And that may be the crux: a decade of low interest rates has fuelled habitual credit reliance by consumers. Two or three decades ago, it would have been unthinkable for people to hold the equivalent of $30,000 or $40,000 (or more) in credit card debt. Yet now that has crept into the Canadian psyche as just something one does.

(By the way, have you noticed the “Estimated Time To Pay” wording on your credit card statement? It is a calculation of how long it will take to pay off your credit card balance if only the monthly minimum payments are made. The record we’ve seen is 330 years and 10 months. Don’t forget, a credit card balance of as ‘little’ as $6,000 can take more than 40 years to pay off if only the minimum payments are made.)

A lot of credit card debt, of course, has in the last few years been shifted over to lower-interest lines of credit, usually unsecured. This Peter/Paul conundrum is interesting: we very often see examples where people have paid off their credit cards using available lines of credit, only to have their credit card balances swell back to where they were within a year or so.

Let me share a scenario of someone who is self employed, as it highlights how a debt problem can spiral out of control quickly. I met recently with a woman in her 50s who owns her own company that furnishes and decorates high-end businesses, like big law firms. Or at least it did. With big firms shrinking to meet reduced market demands and trimming costs, her business had dried up.

Her accountant brought her to me, and it was clear she had severely mismanaged her business and financial affairs, despite her accountant’s warnings. We see this all the time—small business owners are typically very good at what they do, but very poor at handling day-to-day administration.

Here are some specifics that show how misaligned her lifestyle and business expenses were with the actual cash she was earning:

• Owns a townhouse: mortgage $600,000, estimated value $650,000

• Mortgage payments: $3,600/mo

• CRA lien against house for personal income tax owing: $98,000

• She had previously refinanced her house to help fund her business

• She had a prior bankruptcy 15 yrs ago—discharged

• Leased car: $51,000 owing

• Credit card debt: $75,000

• Business loan (personally guaranteed with a high interest rate): $45,000

• Outstanding debts to suppliers: $80,000

• Business rent owing (seven months behind): $11,000

• Net self-employment income: $3,500 per month, or $42,000 per year

The CRA lien is the big problem here. She can’t sell or refinance her house with the existing lien unless she pays her back taxes, while in the meantime interest charges and penalties pile up.

Although this may seem hopeless, it is actually a straightforward personal bankruptcy scenario: She closes the business, any source deduction or HST owing is included in the personal bankruptcy filing, as are any personally guaranteed business debts. She walks away from her house and cannot be sued for any shortfall due to the creditor protection afforded by her bankruptcy. She will lose her house and business, but that almost certainly would have happened regardless.

I should point out that clients in this type of situation often insist on keeping their house, a reflection of the deep-seated Canadian devotion to home ownership, and it takes long and difficult conversations with family, friends and trusted advisors before they come around to the realization that they have to let go of their home.

Keep in mind that the above situation is very normal for us. This is something we see every week.

As stated earlier, the most troubling trend we see now is the flood of regular Canadians facing financial crisis. Households and individuals who are employed, have decent incomes, own homes and have done everything they feel they ‘should’ be doing now find themselves facing serious, if not insurmountable, debt problems. They are having to file insolvencies now, or will in the next few years.

There are possible alternatives to outright bankruptcy, of course. Often, if clients have serious debt problems but also decent incomes, they will attempt a consumer proposal to settle their debt legally through a licensed trustee. In effect, creditors agree to accept just a portion of what they’re owed (which is more than they might get if someone is forced into a personal bankruptcy situation). This allows people to keep their assets (house, vehicles, investments, cottage, etc.) while eliminating unsecured debt they would otherwise have little chance to pay off in the normal course of life. The credit impact in a proposal is easier than a bankruptcy, and one can rebuild credit in a few short years. It’s a growing option for debtors. In fact, about 50,000 Canadians file proposals every year, and that number is rising.

Increasingly, life has simply become too unaffordable for many. The temptation to spend is too great, and access to cheap debt too easy. When the gap between what people need or want, and what they can afford with their incomes becomes too great, credit is used to fill the gap. Interest kicks in, and the cycle begins. As credit card debt is shifted to readily available lines of credit, $5,000 becomes $15,000, and soon you’re facing a $50,000 or $100,000 debt problem. A person living at or below the median income range simply cannot handle this.

Unfortunately, that’s a lot more ‘normal’ than you think.

Source: MacLeans – Scott Terrio is an estate administrator at Cooper & Co. Ltd, a licensed insolvency trustee in Toronto. Follow him on Twitter at @CooperTrustee

Tagged , , ,