Here’s some news to reassure Mark Carney: nearly two thirds (64%) of higher income Canadians plan to reduce their debt levels over the coming 12 months, according to a survey by PwC.
The Bank of Canada Governor expressed concern on Monday that Canadians were playing with fire by ratcheting up their debt levels. He warned that interest rates will not stay low forever and rising debt service costs could wreak havoc on Canadian household balance sheets.
Among higher income Canadians, however, 67% say they are comfortable with their debt levels.
“Interestingly, while reducing debt appears important to a sizeable number of survey respondents, it isn’t driven by fear of job loss as only 9% cite that reason for paying down their debt,” according to John MacKinlay, partner and financial services advisory leader for PwC.
Canadian households earning more than $100,000 were willing to forego a new car purchase (64%), new electronics (59%) or a new home (56%) in order to reduce their debt levels.
Now for the news that will make Carney cringe.
“Even with relatively high consumer debt levels, 78% of respondents said that they think they have the capacity to borrow even more,” says MacKinlay
To better manage their debt, respondents said they were looking for new products, such as an integrated lending product. But they admitted they would want a substantial amount of advice around such a product.
“This conversation can be an opportunity for the banks to enhance the dialogue with their customers and to help educate them on all the options that are available,” says Andrew Smee, vice-president, financial services advisory at PwC.
Integrated lending products combine a customer’s borrowing into one easy to modify account and allow the borrower to set up individual facilities. They could, for example, lock in part of their debt at a fixed rate for five years, with the balance being held as a shorter duration debt, or as a line of credit.
So far the adoption rate of integrated lending is very low, with less than 20% of respondents using one. After a brief explanation of how integrated lending works, 87% of respondents said they might be interested in such a consolidated approach, if it provided them with a lower interest rate.