Lower rates to 'impact housing market'
Easier payments expected to apply to mortgages
Andrew A. Duffy, Times Colonist
Canadian homeowners will be paying down more of their mortgage principal and may be considering investing in rental properties following a large cut of 75 basis points to the Bank of Canada's overnight lending rate according to a mortgage expert.
Alyson Thiessen of Mortgage Intelligence said the cut, which sets the Bank of Canada's key rate at 1.5 per cent and yesterday set off the chartered banks trimming their prime lending rates by 50 basis points to 3.5 per cent, said it's going to have an impact on those already in the housing market and those looking to get into it.
"I think people will see the impact immediately," said Thiessen, noting one of her clients who is waiting to sell his house has seen his rate drop from 6.0 per cent to 5.25 per cent. "Right away there's a 75 basis point change and that's huge for him.
"It makes a difference on payments and everything," she added, noting in a general sense this kind of cut could open the real estate market up for some people. "Now people will be able to qualify for more, and that's been a problem recently as we've lost the 40-year amortization which is now down to 35."
Thiessen said that's made qualifying for mortgages tougher.
"With the lowering of the rate people can start qualifying for what they need."
It could also trigger some homeowner's thinking about investment opportunities.
"For example if you have a line of credit and you have $100,000 left on it suddenly you have a line of credit at prime with interest-only payments, and if I was a betting person I would say people in that position are wondering, 'where is the bottom, I want to buy a rental property.'"
But having said that Thiessen admits it may take more than a rate cut -- done as a result of the central bank noting there's been a significant deterioration in the outlook for the world economy -- to get the average consumer thinking about buying real estate.
"We're always trying to stave off inflation by limiting the supply of money, now in a deflationary period they are trying to open up supply and people are saying, 'I don't care, you can't make me buy a house,'" she said. "The average consumer is terrified right now, there's a lot of uncertainty and consumers will hold onto their money in uncertain times."