Many Canadians believe that the impact of high interest rates on their spending is "just beginning," new poll suggests
While mortgage holders expressed confidence that they can manage the higher payments that are likely to materialize come renewal time, a significant share of Canadians said that elevated costs are beginning to affect their financial plans, according to the Bank of Canada’s Q4 Survey of Consumer Expectations.
“Consumers continued to report feeling the negative impacts of high inflation and high interest rates, and more than last quarter are cutting their spending in response,” the BoC said.
“Further spending adjustments are expected, with many mortgages coming up for renewal in the near term. Financial pressure remains high, particularly for households living paycheque to paycheque.”
The latter demographic, in particular, was more likely to experience profound levels of stress.
“These households are the most vulnerable to financial distress from a budgetary shock – such as a loss of income or an unexpected expense – because they lack the savings or the access to credit to buffer against it,” the BoC said.
A large number of Canadians also indicated a belief that the impact of high interest rates on their spending is “just beginning.”
“Many households, including mortgage holders facing renewal in the coming months, continue to believe that past interest rate increases will impact their spending,” the central bank said. “Those who believe the impacts are not yet over reported weaker overall spending intentions than other consumers.”
Borrowers were likely to spend more time searching for the best renewal deal than they might if rates were still at or near the level they originally signed at, according to Jesse Abrams, co-founder of Homewise.https://t.co/tXGgtTptn4#mortgageindustry #mortgagerenewal
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 12, 2024
How will the renewal cliff affect the largest banks?
Canada’s major banks face significant challenges amid the looming threat of mortgage defaults and losses, according to a recent analysis by the Financial Times.
While the institutions are well-positioned to endure the resulting volatility, the upcoming renewal period poses a formidable obstacle, compounded by a substantial upswing in mortgage payments, FT said.
If the BoC maintains its benchmark policy rate at the elevated 5% level, mortgage holders could face significant spikes in their payment obligations, FT warned.
“Rates for a three- to five-year insured fixed mortgage have surged from 1.93% in November 2020 to 5.74% in October 2023,” FT said, noting that the resulting payment increases range from a weighted average of 32% in 2025 to 48% in 2026.
Approximately $900 billion in mortgages will require refinancing between 2024 and 2026, data from Royal Bank of Canada (RBC) indicated. This figure accounts for nearly 60% of all outstanding mortgages within Canada’s chartered banks.
