Bank of Canada hike interest rate to 1%… the biggest one-time increase since 2000
Bank of Canada hikes interest rate to 1%… the biggest one-time increase since 2000
Bank of Canada hike interest yet again in one of the largest hikes since 2000. The Bank of Canada hiked its benchmark interest rate by half a percentage point to one per cent on Wednesday in its latest move to rein in high inflation. The bank’s rate impacts Canadian businesses and consumers by influencing the rates they pay and receive on things like mortgages, GICs and savings accounts. If the Bank of Canada hike interest continues we could see an upwards spiral of inflation but may crash the housing market.
In March 2020, during the beginning of the COVID-19 pandemic, the bank slashed its rate to barely above zero. At the time, the move helped the economy to weather the unprecedented uncertainty of COVID-19 but in recent months, inflation has come back to its highest levels in decades, causing the central bank to start unwinding the cheap credit.
One of the biggest impacts of this rate hike will be on first-time home buyers, who now face a steeper hill to climb for a loan. Due to higher rates, the bar will rise for the stress test that calculates how much individuals are allowed to borrow.
Canada’s inflation rate hit 5.7 per cent last month, and the price of everything from food to housing to gasoline is going up at its fastest pace in decades.
The national average house price has fallen for two months in a row and is expected to fall further. While that’s obviously concerning for sellers and potentially good news for buyers, Toronto mortgage broker Samantha Brookes said absolutely everyone will be impacted by this week’s rate hike, no matter what part of the market they are in.
While lower prices may help buyers, many are finding that their mortgage will cost more than they expected, she told CBC News in an interview.
“These low rates are now gone, they’re totally off the table,” Brookes, the CEO of Mortgages of Canada, said, “and people just have to be more aware of how much this is going to increase their cost per month.”
Similarly, owners who had banked on a king’s ransom when selling their home are having to adjust their expectations downward, but even those with no plans to sell are feeling the pinch.