It is the return of the pendulum. Acquisitions concluded at the price of a higher bid and a minimal interest rate during the pandemic are catching up with the new owners. The increase in the key rate, although expected, is going so far as to cause some panic among mortgage loan holders.
“This increase hurts,” observes Sylvain Poirier, president of the Quebec Mortgage Brokers Association. A few days away from Christmas, with inflation on top of that [6,9 % en octobre], it creates incredible pressure. Everything happens at the same time. We are talking about the largest increase in the Bank of Canada in history in such a short time. »
Those who took out a high-priced mortgage during the pandemic and opted for a variable rate are starting to bite their fingers. “For a loan of $400,000, this increase of half a percentage point represents $2,000 for the year, calculates Mr. Poirier. And that’s several half points of 1% this year! »
Those who have a fixed-rate loan should also review their budget, analyzes broker Denis Doucet of Multi-Prêts. A loan granted in 2020 with a rate established over three years must soon be renewed. The year “2023 is close”, he recalls, “and nothing indicates that in 2023 the rates will decrease, with inflation which will undoubtedly continue”.
“We get calls from panicked people, in panic, not really knowing what to do,” he said. But it’s case by case. It’s a much more budgetary discussion than anything else. »
Building foreclosures will remain rare, according to the specialist. Only overheated markets with exorbitant rents, such as Toronto and Vancouver, could bear the brunt of this new key rate.
Floating rate
Mortgage loans are now crossing “a breaking point”, relates Hugo Leroux, president of Hypotheca. Some of his clients had chosen the variable rate, but with a fixed payment. In other words, the increase in the key rate does not change the amount of their monthly payment, but all the same increases the total amount of interest to be paid.
“We’ve reached the breaking point now where their monthly payment isn’t even big enough to cover the interest. Every month, the bill increases! It’s special, ”he worries.
The banks will not let this happen. They could impose on these owners a drastic increase of $700 or $800 in their monthly payment in order to prevent the total amount to be paid from becoming higher than the initial amount of the loan.
“Clients started to be called by their financial institution. It embarrasses the client, but it’s about these rates that we took to check if they were eligible for a loan, originally, ”weighs Mr. Leroux.
The increase in the cost of mortgage loans places many new owners “in very uncomfortable positions”, confirms Sylvain Poirier. “We cut in travel, in children’s activities. But there, we can no longer cut where there is nothing left. You cut in the grocery store…”
How far will the Bank of Canada go?
Very smart one who will be able to predict where this increase will stop. The geopolitical context has been unprecedented for a century and the world has not finished digesting the disruptions of the pandemic.
However, a “small consensus” seems to be emerging in the market, notes Hugo Leroux. “We still have maybe half a point to get. According to him, the Bank of Canada will want to “move as quickly as possible so that it can stop raising its rates”.
“I wouldn’t be surprised if [la Banque du Canada] skips a period and increases again in the other period, to give people a little break, otherwise it risks complicating the very life of financial institutions, ”says Denis Doucet.
These steep climbs “never lasted long”, relativizes Sylvain Poirier. Uncertainty still looms, but the landing could be soft in the second quarter of 2023, he believes.
The main interested party has indeed hinted that a break may be in sight. Inflation is slowing, and economic stagnation is even foreseeable for the first months of 2023. However, inflation is “still too high”, noted the Bank of Canada, which indicates that a further increase is certainly to be expected. .
With The Canadian Press