Bank of Canada Governor Mark Carney is raising flags about rising household debt in Canada. Speaking in Ottawa Wednesday, Carney pointed specifically to the increasing use of home equity lines of credit (HELOCs), which Canadians are using mainly to pay down higher interest debt, or for everyday spending.
“Like any financial innovation, home equity lines of credit have both positives and negatives associated with them,” Carney told reporters in Ottawa, quoted by the National Post. “The issue, as with any debt, is if these innovations or this access to debt is taken too far.”
The central bank’s quarterly Monetary Policy Report, which was released Wednesday and details growth forecasts and risks to the Canadian economy, outlines the growth in HELOCs and mortgage refinancings. These surged to $64 billion in 2010, up from just $8 billion in 2001. In the report, the Bank warns that the increasing propensity to spend out of home equity finances may expose many Canadians to a decline in housing prices.
“It contributes to a broader issue where some Canadian households are becoming overstretched,” Carney was quoted as saying by the Globe and Mail. “Canadian households as a whole are being overstretched, which creates risk for the economy.”