As expected, The Bank of Canada (BoC) has raised its benchmark interest rate by a quarter point which pushes up the cost of borrowing.
The bank’s rate is now set at 1.75 per cent, the highest since December 2008 and that is significant given the amount of debt Canadians have racked up in the era of low interest rates.
Consumers will be affected directly as it affects the rates the banks offer their customers for things like variable rate mortgages and savings accounts.
The Royal Bank, TD, BMO and CIBC had already raised their prime lending rates from 3.70 to 3.95 per cent on Wednesday.
While more rate hikes are anticipated, the BoC has indicated it will proceed with caution after assessing the effect on the economy.
The bank also said it expects household spending to increase at “a healthy pace.”
This rate hike will affect those consumers who’ve opted for variable rate mortgages to pay off their homes, and for now those with fixed rates don’t have to worry until it comes time for mortgage renewal.
Market observers expect this rate hike to affect real estate prices as affordability becomes an even greater issue. An even greater number of aspiring first-time home buyers will be shut out of the market given it will be harder to qualify at a higher interest rate. Homeowners is expected to fall as many millennials and other self-employed individuals find it hard to qualify for mortgages given the stress test and the cost of owning a home.
This rate hike basically forces consumers to be more realistic about their spending and going into debt. -CINEWS