Earlier this year, inflation hit 8.1% – the highest it’s been in nearly four decades. With global disruptors like the Ukrainian war and high energy prices, it is likely to remain around 8% over the next few months.
On top of a higher cost of living, Canadians are also in the throes of a wave of interest rate hikes from the Bank of Canada (BoC), which has raised its overnight interest rate five times since January. With a benchmark interest rate of 2.5%, borrowing money for a mortgage is costlier than it was just eight months ago.
According to a recent survey conducted by Leger on behalf of RATESDOTCA and BNN, the majority of Canadian homeowners are feeling the pinch, with 81% saying they’re concerned about high prices due to inflation and increased interest rates. And many are tapping their savings or relying on credit to fill the gap.
81% of homeowners are concerned about rising interest rates and a higher cost of living
According to the survey, an overwhelming majority (81%) of Canadian homeowners are concerned about climbing interest rates and inflation, with 43% of respondents saying they’re “very concerned.”
There’s a lot to be concerned about, especially if you're a variable mortgage holder whose monthly payments fluctuate with the BoC’s policy decisions. Homeowners on a fixed mortgage can enjoy the security that comes with a predetermined rate (though these have risen, too), while homeowners with a variable mortgage are already feeling the impact of today’s higher benchmark interest rate.
Earlier this year, the BoC estimated a 45% increase by 2025 in monthly payments on mortgages taken out between 2020 and 2021. While there are pros and cons to both fixed and variable rate structures, comparing mortgage rates on each is the first step to ensuring you get the lowest rate.
Unsurprisingly, of those concerned, homeowners earning less than $60,000 annually are the most concerned group (89%). But perhaps more surprisingly, a significant amount of those in higher earning brackets are also feeling uneasy. The survey results show that 79% of those concerned are earning $60,000 to $100,000 a year, followed by 77% of those in the $100,000+ annual income bracket.
A larger number of females (84%) are concerned compared to males (78%). In fact, 21% of those who said they were not concerned were males.
According to the survey, six-in-ten (62%) homeowners are taking one or more avenues to pay for increased expenses and higher interest rates, with some looking for higher-paying jobs or asking for raises, and others resorting to credit cards and other borrowing products.
40% of homeowners are using their savings to meet higher expenses
To pay for inflated expenses and increased interest rates, homeowners are relying on all kinds of methods to make ends meet. These include tapping their savings (40%), taking on extra work (15%), relying on lines of credit, credit cards, or other forms of debt (13%); looking for a better-paying job (7%); asking for a raise (5%), and using a home equity line of credit (4%).
Young homeowners (18-34) in particular are either taking on extra work (30%), relying on credit products (17%), looking for better-paying jobs (17%), or asking for a raise (14%).
While credit cards come with high interest rates and should be paid back in full each month, they aren’t affected by the BoC’s interest rate moves. Some personal lines of credit and HELOCs, on the other hand, are — and Canada’s home equity borrowers are already feeling these effects. As the BoC lifts its overnight interest rate, which it’s expected to continue to do in a bid to get inflation down, the interest on these products rises, too. While HELOCs require interest-only payments, a lender can recall the loan at any time — in full — even if the borrower hasn’t used any of it.
Homeowners with variable mortgages, personal lines of credit, and/or outstanding HELOC balances should be accounting for higher interest rates.
If homeowners are dipping into their savings or relying on credit to cover increased expenses, such as mortgage payments, grocery bills, home insurance, and utilities, they may find themselves left with little to no financial wiggle room at the end of each month.
Nearly a quarter of homeowners don’t know how long they can sustain financially, 10% already at their limit
The survey revealed that younger homeowners, first-time homeowners, and those concerned about higher prices due to inflation are significantly more likely to express that they can hang on financially for between one and six months.
If inflation remains at the current rate, 54% of survey respondents believe they can sustain themselves financially for the next seven months or more, with 48% of these being first-time homeowners and 56% being non-first-time owners. More concerning, however, is that 13% of all homeowners believe they can sustain for only one to six months — 21% of which are first-time buyers.
On the other end of the spectrum, 23% of homeowners admit they don’t know how long they can sustain financially under current pressures, and 10% believe they are already at their limit.
Older homeowners aged 55+, earning $60,000 or more annually, and Canadians unconcerned about the impact of inflation and rising interest rates on prices are significantly more likely to believe they can not only manage for seven or more months, but for more than a year versus their counterparts.
When budgeting for home ownership costs, it’s more important now than ever to factor in inflation and higher interest rates.
An online survey of 1,516 Canadians was completed between August 19 and 21, 2022 using Leger’s online panel. No margin of error can be associated with a non-probability sample (i.e. a web panel in this case). For comparative purposes, though, a probability sample of 1,516 respondents would have a margin of error of ±2.5%, 19 times out of 20.
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