Looming interest rate hike has homebuyers feeling added pressure

WINNIPEG -

A looming increase to historically low interest rates has some Manitobans feeling the pressure to borrow now before costs go up.

“We’ve expected a hike, actually, sooner than now,” said Tricia Bailey Sauve, who’s been looking to move her family into a bigger home, to better suit their needs.

The Bank of Canada delayed hiking its benchmark rate last week but signalled multiple increases would be coming soon.

Bailey Sauve and her husband have been watching both interest rates and the housing market closely.

While they have yet to find a place, she said the Bank of Canada’s decision last week to delay a rate hike could give them a bit more time to buy something in case the cost of borrowing goes up.

“We do look at that and wonder what that will look like,” she said. “I know for us we are looking at purchasing another home, and so that will impact, potentially, our ability to do that and the amount of the home we’ll be able to afford within our budget.”

Peter Paley, a mortgage broker with Dominion Lending Centres Mainstream Mortgages said any rate hike will affect potential homebuyers and existing variable rate mortgage holders but he said the impact won’t be that significant.

“Rates are still historically very, very low,” Paley said. “Fixed rates right now are still under three per cent. Variable rates can be as low as 1.2 per cent.”

According to Paley’s calculations, a one per cent interest rate increase on a $300,000 mortgage would cost borrowers an additional $144 per month but it depends on what kind of variable rate mortgage you have.

“There’s one where your payments are going to adjust up or down with the variable rate, and then there’s another kind that the bank will just adjust your principal and interest payments,” Paley said.

The Bank of Canada has been holding the interest rate low to encourage borrowing to stimulate the economy amid the pandemic.

Phil Cyrenne, a University of Winnipeg economics professor, said inflationary pressures brought on by supply chain disruptions have complicated matters.

“They’re being squeezed in some sense because they want the recovery to continue but there’s still supply concerns so that’s the big issue,” Cyrenne said.

Bailey Sauve feels a bit of a crunch to buy a new home but said they won’t be pressured into rushing into anything despite a cost increase on the horizon.

“It’s not something I want to feel stressed or pushed into but this happening kind of makes you feel that way—that if we’re going to do it, it’s sooner better than later,” Bailey Sauve said.

The next opportunity for the Bank of Canada to increase the interest rate is March 2.