One in three expect rate hikes to hurt

ECONOMY ‘Negative impact on finances’

Roughly one- third of Canadians think the Bank of Canada’s most recent interest rate hike will hurt their finances, just as nearly threequarters say their l i ving costs have increased over the past three years, according to a new poll.

The survey, by Forum Research, found that 34 per cent of 1,150 respondents said that the central bank’s most recent 0.25- per- cent rate increase “will have a negative impact on their finances,” with 12 per cent saying the effect will be “extremely negative.”

“A considerable number of Canadians are concerned about what the rate hike will do to their finances and t hey’re overwhelmingly in the middle categories,” Forum Research analyst Gary Milakovic said.

Some 44 per cent of respondents aged 35- 44 polled said the hike will have a somewhat or extremely negative effect on their personal finances.

This anxiety was shared most significantly by those earning $ 60,000-$ 80,000, with 39 per cent agreeing, and by those earning $ 80,000-$ 100,000, with 41 per cent agreeing, that the effects of the hike would be negative.

“Given record levels of total household debt, it isn’t a surprise that some Canadians would feel that a rate hike could be onerous on their finances,” David Hogan, chief economist at Richter LLP, said.

“We’ve already seen some of the chartered banks increase their prime rate in anticipation of this rate change by the Bank of Canada. … For those who are financing large purchases such as houses, this makes the cost of that ownership more expensive.”

Currently, the increase in the cost of credit is slight, Patrick Ercolano, portfolio manager at MD Financial management said. Those with a $ 500,000 mortgage with a 25- year amortization, for example, would see roughly $ 75 added to their monthly payment. Those with fixedrate loans would see the rate go up when the loans are renewed.

The good news, Ercolano said, is that higher interest rates usually signal a stronger economy.

How damaging that will be to a family’s finances “depends how tight its budget is,” MNP insolvency trustee Joe Wilke said.

More than seven in 10 respondents to the Forum poll said that over the past three years, it’ s become more expensive to live, with residents of Ontario ( 77 per cent), Alberta ( 78 per cent) and B.C. ( 79 per cent) more likely to report higher living costs. Residents of Quebec and the Prairie provinces were more likely to say that the cost of living had decreased.

The Forum poll is accurate to plus or minus three per cent, 19 times out of 20.

With the Bank of Canada expected to continue to gradually raise rates — many are expecting another increase in October — things could get tighter in a hurry.

“The first and second hike may be fine but the third time, you might feel the squeeze,” Laurentian University economics professor Louis- Philippe Rochor said, adding that the bank has indicated its target interest rate is around 4 per cent, which could mean another six or seven hikes in the next few years.

“Interest rates are a bad way to manage an economy. It’s like using a sledge hammer to kill a fly on your table. Yeah, you’ll kill the fly but you might also kill most of your table,” Rochor said.