Ontario Consumer Insolvencies Jump 13 Percent In The Second Quarter, One Of The Highest Increases In The Country

Cash-strapped Ontarians may be treating homes like ATMs to pay bills

 August 20, 2019 – Underscoring Ontarians' financial vulnerabilities when it comes to debt, the latest official figures from the Office of the Superintendent of Bankruptcy (OSB) continue to reinforce the mounting strain on many households in the province. The number of Ontarians who filed for insolvency in the second quarter of 2019 was up 13.5 per cent compared to the same quarter of last year, the greatest increase compared to the other provinces besides Newfoundland. Compared to the first quarter of this year, insolvencies in Ontario were up 13.8 per cent.

David Gowling, Licensed Insolvency Trustee with MNP LTD, the country's largest insolvency firm, says that many Ontarians may still be ramping up borrowing against their homes to pay other debts, even as the real estate market appears to be slowing. He says that home equity lines of credit (HELOCs) have emerged as one of the biggest contributors to the growth of household debt, particularly in markets where real estate values have surged over the last decade.

"There is a lot of uncertainty that comes with HELOCs so this type of debt is particularly troublesome for those who don't have firm financial footing. It can put people on the fast track to an endless cycle of debt especially if the borrower accumulates more debt on the credit cards after paying them off with a HELOC," says Gowling.  

According to a new survey conducted by Ipsos on behalf of MNP LTD, about one third (32%) of Ontarian homeowners with a HELOC say they have used the funds borrowed to pay down other debts. Four in ten (42%) say they have used the money to do things they otherwise wouldn't have been able to do, such as home renovations.

"It seems there was a time not so long ago when paying off the mortgage was an important financial goal for households. But today the house is an ATM and the cash withdrawn is being used to pay other bills or to fuel household spending," he says.

The survey showed that only about one in seven (14%) Ontarians admit they have used their HELOC to fund discretionary purchases, such as a vacation or new car. Just about one in ten (9%) say they have used their HELOC to invest in other real estate investments.

"A HELOC might seem like a cheap and convenient mechanism for credit, but what can happen is that people borrow too much and end up struggling with the debt in the long term because they have no room in the budget to cover unexpected expenses," says Gowling.

About two in ten (17%) Ontarians with a HELOC say that they regret the amount they've borrowed against their home. About one in seven (15%) say that they are concerned about paying off their HELOC.

"Anyone struggling to meet their debt repayment obligations should not consider a HELOC. It might seem like a way to make ends meet but taking on more debt puts you at greater risk of foreclosure or insolvency. Instead, seek out professional financial guidance to help set a budget and deal with debt," says Gowling. 

About MNP LTD

MNP LTD, a division of the national accounting firm MNP LLP, is the largest insolvency practice in Canada. For more than 50 years, our experienced team of Licensed Insolvency Trustees and advisors have been working with individuals to help them recover from times of financial distress and regain control of their finances. With more than 230 Canadian offices from coast-to-coast, MNP helps thousands of Canadians each year who are struggling with an overwhelming amount of debt. Visit MNPdebt.ca to contact a Licensed Insolvency Trustee or use our free Do it Yourself (DIY) debt assessment tools.  

MNP LTD is the creator of the MNP Consumer Debt Index, an industry-leading national barometer of financial pressure among Canadians.

About the Survey

The survey was compiled by Ipsos on behalf of MNP LTD between June 14 and June 17, 2019. For this survey, a sample of 2,111 Canadians aged 18 years and over was interviewed. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.4 percentage points, 19 times out of 20, had all Canadian adults been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.