In a new report released earlier this week, BMO noted that the prospect of rising interest rates does not appear to be discouraging Canadians sufficiently from buying homes. 23% are still planning to purchase their primary residences in the next year, for an average expected price of $474,000, with the largest markets averaging $580,000 (Toronto) and $603,000 (Vancouver).
76% of Canadians polled nationwide indicated a belief that interest rates will go up soon and continue to rise, but 53% have stated that they are not preparing for the hikes by stress-testing their mortgages.
Conversely, in the red-hot markets, 53% of buyers based in Ontario and 51% in British Columbia will stress test their mortgages to ensure that they can afford their financial commitments. This is in contrast to a maximum average of only 40% across all other regions.
“For the first time in years, interest rates are beginning to rise – making it increasingly important for Canadians looking to buy a home to stress-test their mortgage against a higher rate to ensure they can afford it over the long term,” BMO head of personal banking Martin Nel said.
“Even moderate increases in interest rates, like the two additional quarter-point rate hikes that we expect from the Bank of Canada this year, can erode affordability in high-priced regions,” BMO Capital Markets senior economist Sal Guatieri added. “Given that rates have been historically low for a while and are not expected to increase dramatically, borrowers may not see the need to stress test. But they should at least plan for a worse-case scenario that involves a material increase in borrowing costs.”
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