Squeezing the First-time Buyer
Canada’s record low interest rates seem slowly coming to an end with repeated hikes in mortgage costs meaning some first-time buyers could be shut out of the housing market. Some may not qualify to buy your house at the price you are asking. Some experts feel this is an indicator that a rate hike from the Bank of Canada is imminent.
On Tuesday, Royal Bank of Canada announced it was raising its residential mortgage rates for the second time in less than a month, by a quarter of a percentage point. Scotiabank followed suit a few hours later.
The moves by Canada’s first- and third-biggest banks will almost certainly lead to another round of higher rates by other lenders.
Effective Wednesday, a closed fixed-rate five-year mortgage at RBC will carry an annual interest rate of 6.10 per cent, with closed seven-year and closed 10-year fixed-rate mortgages carrying annual rates of 6.90 per cent and 7.05 per cent, respectively.
About two weeks ago Royal Bank announced an increase on closed residential mortgages with terms of three, four and five years, boosting its five-year mortgage by 60 basis points. Other lenders followed suit with almost identical increases.
Some experts feel it's not if but when they make the jump is the question. If you have a variable rate mortgage, traditionally a cheaper floating rate is something to be aware of since it is un-predictable. Ask your mortgage professional for advise whether to flip your variable rate into a fixed mortgage or not.
This new intrest hike and any subsequent hikes could dampen the hot housing market in the GSA (Greater St. John's Area) having a negative effect for sellers because it can make getting into the market more difficult for first-time buyers who drive a high percentage of the market.
If prices decline, the market could slow down and in order for you to sell your home, you may have to cut your price.
Even with higher prices, borrowing costs are far better than the 20% when I received my licence to practice real estate 24 years ago! Despite that changeling market, I was able to represent my sellers well and they still continue to use my services to this today!
If you would like to receive advise on how this could affect selling your home and how to overcome it, please give me a call.