Although interest rates have risen dramatically over the past year, homeowners have become enormously richer as property values have risen during the pandemic, bankruptcy trustees say.
Observers assure that this has created a catastrophic wealth gap between property owners and tenants in recent years.
“A gap has opened up, we can see that. Two classes of people were created,” notes Pierre Fortin of Jean Fortin et Associés.
Despite a tightening real estate market since mid-2022, the average price of houses in Quebec has continued to rise by 64% between January 2020 and June 2023, according to the Quebec Professional Association of Real Estate Agents (APCIQ).
As a result, mortgage holders are currently less affected by the increase in defaults, Equifax reported in March.
“Before the pandemic, one in five people who came to us had a house. Now owners only represent one in 20 customers.”
– Jonathan Roy, Administrative Director at Pierre Roy et Associés
Photo Photo from the Pierr Roy & Associés website
Even though variable-rate mortgage holders are having more difficulty making ends meet than before, “they have options,” says Pierre Fortin. He particularly mentions the possibility of refinancing or selling a property.
“They have less money in their pockets, but are still richer,” he explains.
We must also not forget, he emphasizes, that 45% of homeowners in Quebec do not have a mortgage. They are therefore less affected by the rise in interest rates than others.
Difficult for young people
At the same time, the average rent for a four-and-a-half apartment in Quebec increased by almost 20% between October 2019 and October 2022 (from $815 to $973 per month), according to the Canada Mortgage and Housing Corporation (CMHC). ). This situation puts financial pressure on tenants.
“The rental price is terrible!” says Stéphanie (artificial name), a 23-year-old young woman who went bankrupt in 2020.
She says she has friends who have to work two or three jobs at the same time to meet their commitments.
A study by specialist firm Point2 showed in June that access to property is becoming increasingly difficult for first-time buyers.
In 36 of Canada’s 50 largest cities, renters simply no longer have the income needed to buy an entry-level home.
However, owning a property does not offer reliable protection against bankruptcy.
Mathieu Roy, trustee at M. Roy et Associés, predicts that bankruptcy proceedings are likely to affect more homeowners as mortgage extensions come at higher interest rates.
“What I predict is that in two years we will see more proposals from people from Blainville, Mirabel, near the 640, people who have good levels of employment and wealth, but who are struggling with inflation, the significant increase in the Interest rates, it’s I’m in debt at the moment. The world is refilling its cards,” he says.
The consequences of bankruptcy
- Negative impact on credit score: Credit score is lowered to level R9, the lowest level. This makes it difficult to obtain loans and these are offered at much higher interest rates.
- Bankruptcy information remains on the credit file for six years if it is a first bankruptcy and for 14 years if it is a second bankruptcy.
- You are not free of all your debts. You must agree to pay a monthly amount to your creditors.
- Obligation to report your monthly income to your trustee.
- Two mandatory financial consultations with your trustee.
Source: Debts.ca
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