According to a survey conducted by Manulife Bank of Canada, the Bank of Canada's steep path to higher interest rates is pushing some homeowners closer to the edge when it comes to covering their financing costs.
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Here you can see other videos from our team. Try refreshing your browser, or Rising interest rates, or rising interest rates, which have been hiked in each of the last three policy-setting sessions, to take some heat out of the pace of transactions and prices in Canada's red-hot residential real estate market, but less has been revealed about their impact on existing homeowners. More than 20 per cent of homeowners believe rising rates will have a negative impact on their mortgage, financial and debt situation, and 18 per cent say they believe they can no longer afford the house they're in, the highest level of interest rate hike since 2019 on June 1, the highest level since the central bank's latest half-point interest rate hike since 2019.
The incidence of indebted Canadians has gone up over the past year, with the rise coinciding with a rise in interest rates and inflation, said Lysa Fitzgerald, vice-president of sales at Manulife Bank. A couple who signed a variable-rate mortgage in January with a rate of 1.65 per cent at $2,600 a month will have seen their monthly payments go up by $250 in just four months due to rising rates. She said that another half-point increase in July would boost mortgage financing costs by a further $150, meaning their mortgage will be $400 more a month than what they signed up for in the winter. In its latest Financial System Review, the Bank of Canada warned that household indebtedness continues to be the biggest vulnerability in the financial system despite threats from other areas such as global inflation and geopolitical tensions.
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Canada risks a housing-related recession if interest rate hikes get too aggressive In one scenario, the report said that monthly mortgage payments could jump by 45 per cent for some who took out mortgages in 2020 -- 21. The overall increase in payments for all types of mortgages would be 30 per cent during that period. The Bank of Canada has signaled that further rate hikes are on the horizon as inflationary pressures continue to build. The three month increase in borrowing costs in June was the third in a row, and the last two were uncharacteristically large half-point increases.
The rising rates have had a cooling effect on housing markets in some areas. Toronto home prices fell for the third straight month in May, with the average selling price dipping three per cent to $1.21 million in a market that has been on a tear for years, other than a slowdown in the early days of the COVID-19 pandemic. In both April and May, prices fell in Montreal. Manulife Bank has been conducting debt surveys for more than a decade. The latest, conducted online by Ipsos between April 14 and 20, surveyed Canadians across the country between the ages of 20 and 69 with household incomes of more than $40,000. National results were weighted by gender, age, region, and education, and Manulife Bank said the survey has a credibility interval of - 2.5 per cent 19 times out of 20.