Another interest rate hike will impact the mortgage market, experts say

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Interest rates are likely to head for another sharp rise later this month, with experts predicting a big 0.75% hike from the Bank of Canada, and that may be bad news for people looking to obtain a mortgage or refinance an existing mortgage.

The housing market is already extremely expensive, and although sales slowed again in June according to the latest report from the Calgary Real Estate Board, it will take longer for the cost to stabilize.

A further increase in the overnight lending rate to 2.25% will only add to the pressure, experts say.

“I don’t think we’ve seen a 0.75% increase in years and years. It’s definitely a significant one-shot increase,” said Rob Roach, deputy chief financial economist at ATB.

The current interest rate of 1.5% – after three consecutive increases by the Bank of Canada – has reduced the purchasing power of people entering the housing market while increasing the financial burden on existing owners who repay a mortgage.

“The amount of home a borrower can claim is lower right now if they’re looking to take out a fixed rate mortgage,” said Robby Aurora, managing partner of Mortgage Connection.

“If they’re in a position where they already own a home and they have a mortgage and they’re looking to requalify for refinancing, they’re in a position where it would be a lot harder for them to do that. ”

take the time to buy

Aurora said that given market uncertainty and the prospect that costs will continue to rise, buyers should get as much advice as possible and write a solid plan before making a purchase.

But waiting for the market to equilibrate could be a long task, as the Bank of Canada’s announcement on July 13 is unlikely to be the last interest rate hike for Canadians as efforts continue. to curb inflation.

“It’s more of a stopover in a longer journey,” Roach said. “It will take several months for the impact to be felt, and this time around there are mitigating factors. There is not much that higher interest rates can do against rising prices. energy prices when driven by the Russian invasion of Ukraine and things like drought and rising food prices.

“So they should have an effect, but everyone is a little worried this time around because the conditions are different, and will they have as much of an effect as in the past?”

The possibility of interest rates being raised again also increases the likelihood that people will put off buying a home altogether, which could then be bad news for mortgage companies. So far, it has remained stable even though sales have stagnated.

“We’ve always seen that the market is quite stable. Of course, it’s not at the same level as in February and March at the beginning of this year,” Aurora said. “Whenever there is any kind of uncertainty in the market, consumers seek to turn to at least one expert for advice on what they should do.”

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