Homebuyers waiting on the sidelines in BC may just have the little bit of wiggle room they needed to enter the market this summer after the Bank of Canada delivered a much-anticipated interest rate cut this week.
The federal government reduced the key interest rate by 25 basis points to 4.25%, the first rate cut in more than four years. This makes it slightly cheaper to take out all types of loans, including mortgages.
Rebecca Casey, president of the Canadian Mortgage Brokers Association of BC, characterized the fed’s move as measured. It means welcome relief for many homeowners and hope for buyers, but isn’t enough to send prices skyrocketing or massively change the market.
“It’s a cautious, optimistic step in the right direction,” she said.
Buyers looking at $25,000 to $40,000 of additional borrowing power
The rate cut will afford homebuyers more borrowing power than they would’ve had before. After the stress test is taken into account, Casey estimates the average BC couple may be able to borrow $25,000 to $40,000 more toward the purchase of a home.
It’s not enough for someone who’s been looking at townhouses to suddenly be able to afford a detached home, but for some people, it could be just enough to get into the market.
“It’s not enough to flood the market by any means,” Casey said. “But it could encourage those who’ve been sidelined to take another look and take another run at trying to buy a home.”
Some homeowners could get more breathing room
Mortgage holders may also see a little more wiggle room in their monthly budget after the rate cut.
Those with variable rates could see a fairly immediate reduction in monthly payments, and those with variable mortgages and fixed monthly payments will see more of their money go to the principal.
With a .25% rate cut, homeowners are looking at paying $15 per month less on every $100,000 borrowed. So someone with a $300,000 mortgage could be paying $45 less per month.
“It’s not massive. But for those who have big mortgages above $1 million, we’re talking a few hundred bucks a month, and that’s a relief.”
Homeowners with fixed-rate mortgages up for renewal may also see more attractive options on the market than earlier this year.
What does the future hold?
More rate cuts may be on the horizon, but the Bank of Canada has to balance reducing interest rates with reigning in inflation.
Casey expects the bank to continue reducing rates as long as inflation remains steady. If inflationary activity increases, rates are likely to stay where they are. But for now, she’s grateful to see the first rate cut in nearly half a decade.
“Homeowners have been struggling with high mortgage payments, higher grocery bills, higher gas payments. This is what they need.”