A booming Canadian economy has prompted the Bank of Canada to hike its lending rate a quarter of a point for the third time since last summer.
In the near-term, it will likely mean some belt-tightening among those with variable rate mortgages and lines of credit, and with more increases expected, some consumers will be scrimping further as the year goes on.
But the demand for housing in the Toronto region remains so strong that the higher mortgage rates aren’t expected to have a big impact on home sales.
The Bank of Canada’s move to increase the benchmark rate to 1.25 per cent, which will drive up variable mortgages and consumer loans, was widely anticipated and comes only about two weeks after new mortgage stress testing rules were introduced by the Office of the Superintendent of Financial Institutions (OFSI).
The .25 per cent increase would mean an additional $52 a month or $624 per year on payments of a $400,000, 5-year variable rate loan amortized over 25 years, according to Ratehub Inc.
Royal Bank of Canada was first among Canadian banks to respond to the rate hike, raising its prime lending rate by a quarter of a percentage point, to 3.45 per cent, effective Thursday. Bank of Montreal, CIBC, Scotiabank and TD Canada Trust followed.
The volume of home sales in the first two weeks of January is 6 per cent lower than the same period last year when the Toronto area market frenzy was building to its April peak, said John Pasalis, the number-crunching president of Toronto brokerage, Realosophy.
“The mood overall is relatively positive. A lot of buyers need to buy a house,” he said, speculating that many of those are jumping back into the market, after putting their home search on hold last year.