For the Credit Counseling Society, the past year has been very busy.
“Looking at activity from January to last January, the number of people who contacted us increased by more than 100%,” said Scott Hannah, president and CEO of the Credit Counseling Society. “We had to hire additional staff, just to be able to meet consumer demand.”
The company is a non-profit organization that provides free debt relief.
Hannah said he has seen the demand for services increase significantly since the Bank of Canada began raising the benchmark interest rate.
“Consumers are being hit by a perfect storm,” Hannah told PKBNEWS. “You have interest rate hikes, which have been eight straight increases and inflation, which last August hit a nearly 40-year high, so we’re dealing with some really unique situations, which many people have never known before.”
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But it’s not just the number of people seeking help with their debts that has changed, as has the urgency of who needs help.
“In the past, people were more inclined to say let me schedule a date with you, either for a few days on the road or next week. People want help now,” Hannah said.
“So we moved to a relief consultation model. When you call, we will have someone ready and available to help you sort out your situation. So we’ve seen a real increased desire in consumers to deal with their situations, so stress levels are going up noticeably. »
On Wednesday, the Bank of Canada raised its benchmark interest rate to 4.5%, an increase of 25 basis points.
“Not surprised. It was pretty much expected,” said Peter McGrath, a Kelowna mortgage broker with Axiom Mortgage Solutions. “So that 25 basis points is kind of what everyone was expecting.”
The latest hike is the first in 2023 but the eighth consecutive in less than a year as the Central Bank scrambles to rein in inflation.
“What that means for the average borrower who has a variable or a line of credit, they’re going to expect to see their payment go up a bit next month,” McGrath said.
McGrath told PKBNEWS that for the average homeowner with a variable mortgage, the latest increase would amount to about $15 more for every $100,000 of money borrowed.
“So it’s not really going to be a blow to the wallet, however, there’s a lot of backlog and planning that has already been a lot of stress on families.”
For those with fixed rate mortgages and facing renewal, the hit from the continued hikes can be substantial.
“You will be affected by your upcoming renewals and it will go from where you had it five years ago to today’s rates,” McGrath said. “That could be a big leap.”
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The banks’ prime rate now sits at 6.7%, an increase of 4.25% since the bank began raising the rate.
The rising cost of borrowing affects people’s purchasing power.
“If you had an income of, say, $25,000 at the time, you could have qualified for about $145,000. Today we’re looking at $105,000,” McGrath said. “So that’s about a 28% reduction in your purchasing power.”
The nearly 40-year high inflation rate of 8.1% in mid-2022 has cooled and hit 6.3% in December.
The Bank of Canada expects inflation to come down significantly over the next few months, with an expected drop to 3% by mid-2023 and 2% next year.
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