Housing costs in the Okanagan are already among the highest in the country, and the latest interest rate hike by the Bank of Canada will make homeownership even more expensive.
The central bank on Wednesday raised its key rate by half a percentage point, bringing it to 3.75%. The move marks the sixth consecutive rate hike this year.
“With the price of housing here, (rising interest rates) is making it a lot harder,” said Nikki Harrison, mortgage broker at The Mortgage Group (TMG).
“It greatly affects ordinary people. It’s not just, you know “Oh, well, you know, rates are going up, whatever.” It actually impacts people’s lives…so you either get the house you want or you don’t.
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With prime rates also set to rise, it will become even more difficult to pass the mortgage stress test.
Introduced in 2016, the stress test involves adding 2% to the discount rate as a qualifying factor.
“It’s just astronomical and people don’t qualify for it anymore,” Harrison said.
“So I see buyers walking away and saying, ‘You know what? We’re going to keep renting until the rates come down again.
While headline inflation slowed to 6.9% last month, we are far from the 2% target to let supply catch up with consumer demand.
Inflation and rising central bank interest rates are prompting many British Columbians to seek help managing their debt.
The Credit Counseling Society, a non-profit organization, has seen a 10% increase in requests for help every month for the past year.
“We see over 1,000 additional clients come to us every month,” said Scott Hannah, president and CEO of the Credit Counseling Society.
As a result, the organization had to hire additional staff to meet the increased demand for support.
“Typically, in the past, when someone started having financial difficulty, they would contact the organization and seek to make an appointment to meet with one of our counsellors,” Hannah said.
“Today they are looking for immediate advice. So we’re seeing a pent-up increase in consumer urgency due to inflation and these rate hikes.
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Hannah added that many people rely on credit cards to get by, which only adds to their debt load.
He said thoughts of worst-case scenarios also add to financial stress.
“That’s the biggest worry. Am I going to have to sell my house because I can’t afford it? And then what then? Because the rental prices are just as high,” Hannah told Global News. “So there are no easy solutions here.”
Hannah said for those looking for financial stability, the best thing to do is to consider ways to cut down on day-to-day expenses.
“Can they work from home to reduce transportation costs? What else can they do to reduce their costs, and are there other opportunities for them to increase their revenue? ” he said.
“Do they have to find a side job, do they have to make tough choices and maybe go from a two-car family to a one-car family?”
As borrowing costs rise, mortgage brokers are reminding the public that sudden increases are shocking because they are higher than people have grown accustomed to.
“Over the past few years, with interest rates at historic lows, I think a lot of the population has been spoiled,” Harrison said, adding that current rates are not unprecedented.
“These are pretty median average rates, there’s nothing exceptional or high about them,” she said.
“All of us over 40, 45, we’ve all had 5.5, 6.0, 6.5 per cent mortgages, so now we have these generations that have never seen this before because they were not adults. They’re all freaking out, going, ‘Oh my God, this is terrible. The whole world implodes.
“And it’s not.”
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