Indebted consumers to feel pinch of rate hikes

The Bank of Canada’s increase to its key interest rate on Wednesday, the second bump since July, will start putting a more noticeable squeeze on consumers holding variable rate mortgages, lines of credit or any consumer debt tied to bank prime lending rates, according to experts.

“It won’t necessarily have an effect on people trying to get into the (property) market,” Vancity mortgage expert Ryan McKinley said.

“Who it does affect is people who already have some kind of variable rate (loan), variable rate mortgage or credit-line mortgages.”

Those are all tied to the prime lending rates that banks charge, which are all due to rise in lock step with a quarter per cent bump that the Bank of Canada made in its key overnight lending rate to one per cent from 0.75 per cent in July.

That will push prime interest rates to 3.2 per cent — a half-a-percentage point rise from just July.

“If you’re looking at someone with a $350,000 mortgage, (Wednesday’s increase) changes their payment about $45 a month,” McKinley said. “A $500,000 mortgage, it’s about $64 per month.”

In Metro Vancouver, the average new mortgage at the end of 2016 was $438,716, according to Canada Mortgage and Housing Corp. and Equifax.

Who it does affect is people who already have some kind of variable rate (loan), variable rate mortgage or credit-line mortgages.

However, McKinley said he’s advising clients with home-equity lines of credit that are variable interest and tied to the prime rate to start considering whether to lock in those loans at a fixed rate.

“With two successive rate increases, it’s definitely getting people’s attention,” McKinley said.

The Bank of Canada’s rate hike is a move aimed at trying to prevent Canada’s unexpectedly robust economy from overheating.

It was announced less than a week after Statistics Canada revealed that the country’s economy grew by 4.5 per cent in the second quarter of the year.

“Recent economic data have been stronger than expected, supporting the bank’s view that growth in Canada is becoming more broadly-based and selfsustaining,” the bank said in a statement that accompanied the announcement.

However, the Bank of Canada’s statement also noted that, considering the high levels of debt being carried by Canadians, “close attention will be paid to the sensitivity of the economy to higher interest rates.”

Royal LePage realtor Adil Dinani said the Bank of Canada’s halfpercentage-point rate increase will likely have a “marginal” effect on Metro Vancouver’s real estate market.

“People aren’t hitting the panic button by any means,” Dinani said, but he is getting calls from clients inquiring about their options around interest rates

The advice he’s been giving clients for the last year is to expect interest rates to rise.

“The two questions you need to answer are, one, can you comfortably afford payments today,” Dinani said.

“And if you’re locked in for three years and you renewed, and rates go up (two percentage points), could you comfortably afford the payments then, because that could very much be the reality.”

It will take a few months to determine whether the last couple of rate increases impact the local property market, Dinani said.