The Bank of Montreal has released a new study that finds 4 out of 10 Canadians would be concerned about the affordability of their home should the interest rate rise as little as 2%. The survey was conducted over a stretch of three days from February 21 to February 23 and surveyed 1,500 Canadians. Interestingly, the survey not only looked at how many Canadians may not be able to afford a rate increase, but also which provinces are the most concerned.
In addition to the 4 out of 10 people that think they wouldn’t be able to handle an interest rate hike, even by just 2%, one in five Canadians said that they definitely wouldn’t be able to make their mortgage payments should the interest rate rise; 23% didn’t know one way or the other how much a rise in the interest rate would affect them. While this may seem like a huge number, the majority of Canadians (57%) said that they would be able to afford their home, even with an interest rate increase.
It may not be surprising, with all eyes on Vancouver and their rising home prices, that B.C. is the province that would be least able to handle an interest rate increase. It was here that only 48% of Canadians thought they’d still be able to afford their mortgages. Right next door in Alberta however, 73% of respondents said that they’d be able to afford their home if interest rates were to rise. That’s good news, seeing as how Calgary’s housing market was one of the hardest hit during the recession. Tied for second place in this mortgage stress test are Saskatchewan and Manitoba, with 69% of homeowners in both provinces saying that they’d be able to handle a rise in interest rates.
While the number of homeowners that are either unsure of whether they’d be able to make their mortgage payments, or know they wouldn’t be able to, an expert at BMO says the stats shouldn’t trouble Canadians for too long. “At first when you look at this you think “Oh my goodness, that’s pretty scary,” says Laura Parsons, a mortgage expert at BMO. “But if we get clients in to take a good hard look at how they’re spending their money, I think they’d find that extra two percent in their budget. It would just mean they’d have to cut back on certain things.”
Parsons also said that the report didn’t just look at first Toronto mortgages or mortgages that were in the first position across the provinces. Rather, it considered interest rate increases on all forms of home borrowing, including home equity lines of credit in Canada and second mortgages.
