As Canadian homeowners grapple with the Bank of Canada's flurry of interest rate hikes, one in three say they won't be able to handle higher rates for long before they are forced to sell their homes.
Thirty-five per cent of Canadian homeowners say they can handle the Bank of Canada's current benchmark interest rate of 4.5 per cent for an average of less than 10 months before they would be forced to sell or vacate their homes. That's according to a Yahoo/Maru Public Opinion survey of 1,920 Canadian homeowners released on Thursday.
The survey found that how long Canadian homeowners can sustain today’s interest rates varies, depending on the type of mortgage or financing method on their home.
According to the survey, 45 per cent of Canadians with variable rate mortgages would be able to ride out today’s interest rate levels for 8.3 months before having to sell or vacate their home. Of those with a line of credit on their home, 45 per cent said they would be able to sustain today’s interest rate levels for 8.3 months.
Homeowners with fixed rate mortgages are feeling less pressure than those with variable rate mortgages or home lines of credit. The poll found that 35 per cent of those with a fixed rate mortgage will be able to ride out a 4.5 per cent interest rate for 10.4 months.
The Bank of Canada hiked its benchmark overnight rate by 25 basis points last month, its eighth consecutive rate increase that brought the rate to 4.5 per cent, the highest level since Dec. 2007. The central bank said data have shown that its tightening policy has dampened household spending, particularly when it comes to housing and big-ticket items.
“We’ve raised rates 425 basis points on a cumulative basis over the last year, and that is putting an increase burden on Canadians that have high debt loads. That is stretching them,” Governor Tiff Macklem said at a press conference discussing the bank’s latest rate hike.
“But what we see as these interest rate increases are working through the economy, they are working to rebalance demand. Inflation is coming down… and it’s going to be worth it.”
Maru executive vice-president John Wright said the Bank of Canada's aggressive rate hiking cycle will be challenging for many, particularly those who got into the real estate market in 2020 and 2021 relying on an outlook "that in no way suggested rates would be taking the steep upward turn they have."
"As a result, this quarter will likely witness many Canadians who chose variable mortgages then with cheap money, and who are now being forced to sell at a significant loss and potentially face financial ruin," Wright said.
“While the Bank of Canada is using interest rate hikes as a blunt instrument to wrestle inflation to the ground, there is a real human consequence to what was not anticipated, especially with inflation still high, debt loads increasing to cover the spread, and a slowing economy that could well create a recession that tosses people out of work.”
The survey also found that 11 per cent of Canadians said rising interest rates have forced them to make “drastic financial adjustments and lifestyle changes”, while 22 per cent said it has caused “very serious pressures.” Another 38 per cent said recent rate hikes have “caused anxiety but it’s manageable” while 29 per cent reported that the increases have not had a significant impact at all.
Of those who have made drastic financial adjustments and lifestyle changes, 19 per cent reported having a variable mortgage, compared to 11 per cent with a fixed rate mortgage and 9 per cent with a line of credit on the home. For those who said they have not experienced any significant impact at all, 48 per cent reported not having a loan, while 22 per cent have a line of credit, 20 per cent have a fixed rate mortgage and 14 per cent have a variable rate mortgage.
Maru Public Opinion surveyed 3,074 Canadians adults between Jan. 23 and Jan. 24. Within this group, 1,920 Canadians who own their home were interviewed, with an estimated margin error of +/- 2.2 per cent, 19 times out of 20.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.