Central Bank Raises Overnight Rate to 1%
Photo: Flickr / Steven Lilley
During the first half of the year, a loud debate was occurring in public as to what would happen if the Canadian central bank were to raise its interest rates, how would affect the real estate market, and most importantly, what would happen to the financial independence of many Canadians who are struggling to make ends meet. The Bank of Canada decided to raise its overnight lending rate yet again to one percent, and did not leave out the possibility of raising interest rates even further before the year ended. According to a spokesperson, the changes in the interest rate were a result of unforeseen economic growth, which strongly exceeded all major forecasts and expectations. Certainly, many economic analysts had predicted that record-low interest rates would end, but many did not expect it to be as soon as September.
With current interest rates, it is clear that prospective homebuyers as well as current property owners will now have to deal with even higher borrowing costs than what they had been able to enjoy during the last couple of years. The last time the interest rate was at one percent was in the beginning of September in 2010. Between 2014 and 2015, the central bank lowered its lending rate to just half a percentage point – a rate that had endured until now.
This news is yet another hurdle for first-time homebuyers, who, along with a higher lending rate, also have had to deal with the adoption of new financial regulations that prevent banks from lending too much money to those with lower incomes. With home prices at record-high levels, it is now even more difficult for the average citizen to obtain a mortgage for their first home. This is especially the case if they live in incredibly competitive areas such as Metro Vancouver and the Greater Toronto Area, where the average housing costs dwarf those in regions such as the Prairies as well as Quebec.
Given that mortgage costs will now certainly rise, perhaps most worrying is the fact that, according to a new study published by the Canadian Payroll Association, is that half of the Canadian employed population is living paycheque to paycheque. Additionally, another poll conducted by IPSOS on behalf of a major accountancy firm has found that most Canadians would be unable to afford to add just another $130 per month on top of their monthly living expenses.
Published Date: Sep 30 2017