Stephen Poloz, the governor of the Bank of Canada, seemed to surprise a few with the decision to raise the benchmark rate again. The .25 point increase last month pushed the rate to 1% and is the second increase since the start of the summer. The bank prime benchmark rate (the rate that establishes variable rate mortgages and other mortgage products) is now 3.2%.
Usually, the Bank of Canada raises their key benchmark rate amid concerns of looming inflation (all governments dislike inflation), but inflation levels haven’t moved upwards significantly. It’s still in the range of an annualized rate of 1.2%. This rate increase maybe somewhat of a quick reaction to the growth of the Canadian economy in the first 6 months; it surprisingly grew by 4.5% in the second quarter.
The federal government and the banking regulator Office of the Superintendent of Financial Institutions have already taken steps to cool the housing market in Canada and now they’re at it again.
The proposed “stress test” regulation targets mortgage borrowers who have a 20%+ down payment. The new regulation would require mortgage consumers to qualify for a mortgage based on an interest rate that is 200 basis points higher than the actual contract rate (the actual rate you’d pay). This could result in Canadians either qualifying for a much smaller mortgage or being disqualified altogether. It hasn’t been finalized completely yet, but it’s a concern that we need to consider now.
As your mortgage professionals, our responsibility is to help you make sense of what’s happening today in the mortgage market with an eye to the future. Allow us to assist you evaluate how new regulations and interest rate adjustments impact you, your family, and your home ownership dreams.