Manulife Bank survey finds that higher rates hurt Canadian homeowners

by Editor

According to a poll by Manulife Bank, the Bank of Canada’s steep path to higher interest rates is putting some homeowners on the edge when it comes to paying their mortgages. Almost one-quarter said they would have to sell if interest rates continued to rise.

Rising interest rates, which have been raised in each of the last three policy-making sessions, have slowed down transactions and prices in Canada’s hot residential real estate market, but not much is known about how they affect current homeowners.

According to a Manulife Bank survey conducted before the central bank’s latest half-point interest rate hike on June 1 to 1.5 percent, the highest it has been since 2019, more than 20% of homeowners expect rising rates to have a significant negative impact on their mortgage, financial, and debt situation, and 18% believe they can no longer afford the home they’re in.

Nearly half of the 2,001 Canadians polled indicated they would struggle to cope with unexpected costs or would postpone summer vacation plans owing to cost worries, while just 46% said they were prepared for higher interest rates.

Despite challenges from other areas such as global inflation and geopolitical conflicts, the Bank of Canada said last Thursday in its annual Financial System Review that household debt remains the largest vulnerability in the financial system.

According to one scenario in the analysis, monthly mortgage payments might increase by as much as 45 percent for certain people who took out mortgages in 2020 and ’21. For all types of mortgages, the overall increase in monthly payments throughout that time period would be 30%.

As inflationary pressures continue to rise, the Bank of Canada has indicated that more rate rises are on the way. The increase in borrowing costs in June was the third in a row, with the previous two being unusually high half-point hikes.

CIBC Capital Markets economists revised their rate projection on Friday, citing evidence of increasing inflation as a rationale for the Bank of Canada to hike rates sooner than expected. CIBC raised its overnight rate forecast to a high of 2.75 percent, up from 2.5 percent previously.

In certain locations, rising rates have already had a chilling effect on home markets. In May, Toronto house prices declined for the third month in a row, with the average selling price falling 3% to $1.21 million in a market that has been on fire for years, with the exception of a brief pause during the early days of the COVID-19 pandemic. In both April and May, prices in Montreal decreased.

For more than a decade, Manulife Bank has conducted debt surveys. The most recent study, conducted online by Ipsos between April 14 and 20, polled Canadians aged 20 to 69 with family earnings of more than $40,000. Manulife Bank says that the poll had a credibility interval of +/-2.5 percent 19 times out of 20 and that the results were weighted by gender, age, location, and education.

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