Another interest rate hike would impact mortgage market, experts say

Interest rates will likely be heading for another sharp increase later this month, with experts predicting a significant Bank of Canada hike of 0.75%, and that can be more bad news for people looking to get a mortgage or refinance an existing one.

The housing market is already extremely pricey, and even though sales slowed down again in June according to the latest report from the Calgary Real Estate Board, it will take more time for the cost to stabilize.

A further increase of the overnight lending rate to 2.25% will just add to the strain, experts say.

"I don't think we've seen a 0.75% increase in years and years. It definitely is a significant increase all at once," said ATB financial deputy chief economist Rob Roach.

The current interest rate of 1.5% — following three straight increases from the Bank of Canada — has reduced the buying power for people entering the housing market along with increasing the financial burden on existing homeowners paying off a mortgage.

"The amount of home that a borrower can qualify for is less at this time if they are looking to get into a fixed-rate mortgage," said Robby Aurora, managing partner with Mortgage Connection. 

"If they're in a position where they already own a home and they have a mortgage and they're looking to requalify for the purpose of refinancing, they're in a position where it would be a lot more difficult for them to do that." 

Taking time to buy

Aurora said given the uncertainty in the market and the prospect of costs continuing to go up, buyers need to get as much advice as possible and draft a solid plan before they go ahead with making a purchase.

But waiting until the market balances out could be a lengthy endeavour because it's unlikely the Bank of Canada's announcement on July 13 will be the last interest rate hike Canadians see, as efforts continue to reel in inflation.

"It's more a step in a longer journey," said Roach. "It will take several months for the impact to be felt, and this time around there are some mitigating factors. There's not much that higher interest rates can do about higher energy prices when they're driven by the Russian invasion of Ukraine and things like drought and higher food prices.

"So, they should have an effect but everyone's a little bit anxious this time around because the conditions are different, and will they have as much effect as they have in the past?"

The possibility of interest rates being increased again also creates more likelihood people will hold off on buying a home altogether, which could then be bad news for the business of mortgage companies. So far, it has remained steady even with sales staying stagnant.

"We've still seen the market is fairly steady. Of course, it is not at the same level as what it was in February and March at the start of this year," said Aurora. "Any time there is any sort of uncertainty in the marketplace, consumers do look to go to an expert at least for advice on what (they) should do."