12/14/2016 11:12 EST | Updated 12/14/2016 11:28 EST

Canadians ‘Losing Support Of Low Interest Rates' Amid Record Debt

"When interest rates increase, it’s going to leave many Canadians in greater financial difficulty.”

Canadian households have recorded their highest debt levels ever amid warnings that higher interest rates are likely ahead.

Statistics Canada reported Wednesday that the average Canadian household had $1.67 in debt for every dollar of disposable income in the third quarter of this year. That’s up from $1.645 in the same quarter a year earlier.

Canadians’ high debt loads are possible because of a long run of low interest rates, which have lowered debt payments, allowing consumers to borrow more. But economists are warning that Canadians could soon be facing higher interest rates.

“Households are starting to lose the support of a low interest rate environment,” TD Bank economist Diana Petramala wrote in a client note Wednesday.

Photo: Leonardo Patrizi via Getty Images

U.S. government bond yields, which influence Canadian mortgage rates, have spiked by half a percentage point since the U.S. election, and about 40 per cent of that has been passed on to consumers through higher mortgage rates, she wrote.

Petramala expects Canadians’ debt loads to keep growing, at least in the short term.

“Low interest rates are helping to keep the economy under control, but this isn’t something that will continue for a prolonged period of time,” said Scott Hannah, CEO of the non-profit Credit Counselling Society.

“It’s tempting to take out more loans and use up credit since interest rates are so low, but when interest rates increase, it’s going to leave many Canadians in greater financial difficulty.”

However, it’s not all bad news for Canadian households. Household net worth rose 2.5 per cent in a year, and it wasn’t just house prices — people’s savings and investments also shot up, thanks to recent strength in stocks.

Petramala noted that, if Canada used the same measure of household debt as the U.S., it would have actually shrunk in the latest StatsCan report, and remains well below the peak levels seen in the U.S. before its housing market crash.

Household debt growth in Canada is much smaller today than during the boom years of 2004-2007, she wrote.

Nevertheless, debt once again grew faster than Canadians’ incomes, which rose 4 per cent while debt grew 5.2 per cent.

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