Higher interest rates add to home buyer struggles
First-time home buyers already struggling with more stringent mortgage rules have been dealt another blow by an increase this week in the Bank of Canada’s five-year mortgage rate.
The move is also one more reason why the Toronto region’s soft spring real estate market could linger longer, according to some.
On Wednesday the Bank of Canada followed the country’s big banks and announced it was raising its 5.14 per cent benchmark mortgage rate to 5.34 per cent.
The central bank rate is different from the rates that banks offer consumers, but it’s used to assess mortgage applications.
Since Jan. 1, home buyers with a 20 per cent downpayment have had to qualify at the central bank’s five-year rate or at 2 percentage points higher than the mortgage rate being offered by their bank.
That alone has diminished buying power by 16.5 per cent, according to a recent report by Royal LePage.
Higher fixed rate mortgages alone won’t be enough to cause a dramatic drop in activity, but it will reinforce the trend to longer commutes for more affordable homes and add demand to the already hot condo market, said Sotheby’s CEO Brad Henderson.
“We’re coming off a historic period where interest rates have been so low that homebuyers have enjoyed the ability to borrow vast amounts of money not only for home purchasers but their lifestyles,” he said.
“It’s just another small number of people who aren’t going to qualify for the mortgage they had hoped for and have to now explore some alternatives,” said Cynthia Holmes, chair of the real estate management department at the Ryerson’s Ted Rogers School of Management.
Those alternatives could include waiting longer to buy or turning to other lenders such as private companies or credit unions, which are provincially rather than federally regulated and therefore not bound to apply the stress test.
Source: Toronto Star
Canada Real Estate, Canadian Housing Market, First Time Home Buyers, Fixed Rate Mortgages, Market Conditions, Mortgage Consumers, Mortgage Market, Mortgages & Real Estate, Stress Test, Variable Rate Mortgages
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