The Bank of Canada’s recent policy decisions have led to significant increases in interest rates, putting pressure on Canadian homeowners who are struggling to cover their mortgage payments. A survey conducted by Manulife Bank reveals that nearly one in four homeowners (24%) fear they will have to sell their homes if rates continue to climb. This concern is further exacerbated by the fact that over 20% of respondents expect rising interest rates to have a "significant negative impact" on their financial situation.
The Impact of Rising Interest Rates
The Bank of Canada’s decision to increase interest rates has already had a noticeable effect on housing markets in some regions. Toronto home prices, for instance, fell by 3% in May, marking the third consecutive month of decline. Montreal also saw price drops in both April and May.
Increased Mortgage Costs
According to Manulife Bank, another half-point increase in interest rates would lead to a further boost in mortgage financing costs, resulting in an additional $150 per month for homeowners. This is on top of the $400 monthly increase that would occur with each subsequent half-point hike. The cumulative effect would be significant, with some homeowners facing up to 45% increases in their mortgage payments upon renewal in 2025-26.
Household Indebtedness: A Growing Concern
The Bank of Canada has identified household indebtedness as the biggest vulnerability in the financial system. In its latest Financial System Review, the bank warned that rising interest rates could lead to a surge in mortgage defaults and a subsequent slowdown in economic growth.
What’s Next for Interest Rates?
Economists at CIBC Capital Markets have revised their rate forecast due to worsening inflationary pressures, predicting a peak of 2.75% for the overnight rate – up from a previous forecast of 2.5%. This increase would lead to even higher mortgage costs and further strain on homeowners.
The Manulife Bank Debt Survey
Manulife Bank has been conducting debt surveys for over a decade, providing valuable insights into Canadian consumers’ financial habits and concerns. The latest survey, conducted online by Ipsos between April 14 and 20, polled Canadians across the country with household incomes exceeding $40,000.
Key Findings from the Survey
- Nearly one in four homeowners (24%) fear they will have to sell their homes if interest rates continue to climb.
- Over 20% of respondents expect rising interest rates to have a "significant negative impact" on their financial situation.
- The cumulative effect of increased mortgage costs could be substantial, with some homeowners facing up to 45% increases in their mortgage payments upon renewal in 2025-26.
Conclusion
The Manulife Bank debt survey highlights the growing concern among Canadian homeowners about rising interest rates and its impact on their financial situation. As interest rates continue to climb, it is essential for policymakers, lenders, and homeowners to work together to mitigate the effects of this trend and ensure a stable financial future for all.
Sources:
- Bank of Canada’s Financial System Review
- CIBC Capital Markets rate forecast revision
- Manulife Bank debt survey
