The Bank of Canada’s latest interest-rate cut will help homeowners who are due to renew their mortgages. But experts say they don’t expect cheaper loans to motivate more prospective homebuyers to wade into the market.
Although borrowing is becoming cheaper, mortgage rates are still more than double the cost of loans issued in 2020 and 2021 when their interest rates were well below 2 per cent.
“The impact will be limited,” said Rebecca Oakes, Equifax Canada’s vice-president of data and analytics. “Many borrowers who locked in at historically low rates are still renewing at significantly higher interest costs, which continues to strain household budgets.”
On Wednesday, the central bank made its seventh consecutive interest-rate cut, bringing its benchmark rate down to 2.75 per cent from 3 per cent. But the escalating trade war has cast a pall over homebuying and pushed homebuyers back to the sidelines.
“There is a lot of uncertainty. That has prompted households to take a wait-and-see approach,” said Samantha Villiard, a regional vice-president with Re/Max Canada real estate brokerage.
Her fellow regional vice-president Kingsley Ma said home sellers and buyers would rather put plans on hold until the economic uncertainty subsides.
Mr. Ma said he did not think the bank’s 25-basis-point cut would persuade buyers to make a purchase. “If you lose your job, you won’t be able to pay your mortgage so it doesn’t matter if the interest rates are lower,” he said.
Current homeowners who have renewed their mortgages over the past year are struggling to keep up with payments, data suggest. Ontario had a mortgage delinquency rate – defined as a homeowner not making a payment for at least 90 days – of 0.22 per cent in the last quarter of last year, according to Equifax data. That is nearly double the rate in the fourth quarter of 2023.
“While a lower rate environment can help slow the pace of delinquencies, it doesn’t erase the financial pressures that have been building over time,” Ms. Oakes said.
After the central bank cut its benchmark rate, lenders followed suit and reduced the cost of their variable-rate mortgages. (Variable-rate mortgages typically move in tandem with the bank’s benchmark rate.)
However, the impact on fixed-rate mortgages was murky. Lenders typically base their fixed-rate mortgages on the performance of the government bond market because they partially use the bonds to help fund their loans. After the Bank of Canada announced the interest-rate cut, bond yields increased. A global trade war will drive up prices of goods as businesses try to pass the cost of tariffs on to consumers.
“This is a key reason why I don’t believe mortgage rates will come down materially enough to eliminate the renewal risks,” said Carl Gomez, chief economist with commercial real estate firm CoStar Group. “There was a promise there that Canada cuts interest rates and mortgage rates will go down. But fixed mortgages haven’t gone down all that much.”
Home prices are still well out of reach for many Canadians. The typical home price across the country was $709,200 in January, according to Canadian Real Estate Association data. That is lower than 2022 but still 33 per cent higher than early 2020, before the Bank of Canada slashed interest rates to nearly zero per cent. Mr. Gomez said homes are not affordable and mortgage rates are still relatively expensive.