Canadians face mortgage crunch
TORONTO — A new survey suggests many Canadian homeowners have made cutbacks in the past year to make mortgage payments and threequarters would feel a significant squeeze in their finances from even a modest rise in mortgage payments.
The inaugural BMO Housing Confidence Report finds one-third of those surveyed say they’ve already cut back on spending, while one-quarter have reduced the amount they’re saving and 17 per cent have dipped into savings to meet mortgage obligations.
And 72 per cent of respondents say they would feel significant strain from a modest increase in their monthly mortgage payments, such as from an increase in interest rates.
Meanwhile, 16 per cent say a 10 per cent rise in mortgage payments would leave them at risk of not being able to afford their home.
Still, homeowners seem relatively confident in the market, with 46 per cent of respondents saying they plan to buy in the next five years.
However, the level of interest in buying drops to 36 per cent in the event of a 5-per-cent increase in home prices.
The report, which was conducted by Pollara in September, paints a picture of homeowner sentiment following new mortgage regulations that came into effect in July and ahead of the Bank of Canada’s latest announcement on interest rates Tuesday.
Economists have noted that the central bank’s oneper-cent policy rate — which forms the basis for bank’s prime rates for lending — has contributed to an unsustainable run-up in home prices and risky levels of household debt.
In a recent revision, Statistics Canada has placed household credit market debt at 163 per cent of income, about the level reached in the United States before the housing crash of 2007-08.
However, the BMO poll suggests that while a vast majority of homeowners surveyed, 92 per cent, believe that debt is a serious issue, just 19 per cent believe household debt is a problem for them.
“Rising debt and elevated house prices have increased the vulnerability of a meaningful number of households, and their financial situation will worsen if interest rates increase even moderately,” said Sal Guatieri, a senior economist at BMO Capital Markets.
“With rates likely to remain low for some time, the recent tightening in mortgage rules will help to cool credit growth and the housing market.”