Homeowners made cutbacks to make mortgage payments: BMO report

A new survey suggests many Canadian homeowners have made cutbacks in the past year to make mortgage payments and three-quarters would feel a significant squeeze in their finances from even a modest rise in mortgage payments.

A new survey suggests many Canadian homeowners have made cutbacks in the past year to make mortgage payments and three-quarters would feel a significant squeeze in their finances from even a modest rise in mortgage payments.

The inaugural BMO Housing Confidence Report finds one-third of those surveyed say they’ve already cut back on spending, while one-quarter have reduced the amount they’re saving and 17 per cent have dipped into savings to meet mortgage obligations.

And 72 per cent of respondents say they would feel significant strain from a modest increase in their monthly mortgage payments, such as from an increase in interest rates.

Meanwhile, 16 per cent say a 10 per cent rise in mortgage payments would leave them at risk of not being able to afford their home.

Still, homeowners seem relatively confident in the market, with 46 per cent of respondents saying they plan to buy in the next five years.

However, the level of interest in buying drops to 36 per cent in the event of a five per cent increase in home prices.

The report, which was conducted by Pollara in September, paints a picture of homeowner sentiment following new mortgage regulations.

that came into effect in July and ahead of the Bank of Canada’s latest announcement on Tuesday in which the central bank left its trend-setting rate unchanged at one per cent

Economists have noted that the central bank rate — which forms the basis for the prime lending rates of commerical banks — has contributed to an unsustainable run-up in home prices and risky levels of household debt.

In a recent revision, Statistics Canada has placed household credit market debt at 163 per cent of income, about the level reached in the United States before the housing crash of 2007-08.

However, the BMO poll suggests that while a vast majority of homeowners surveyed — 92 per cent — believe that debt is a serious issue, just 19 per cent believe household debt is a problem for them.

“Rising debt and elevated house prices have increased the vulnerability of a meaningful number of households, and their financial situation will worsen if interest rates increase even moderately,” said Sal Guatieri, a senior economist at BMO Capital Markets.

“With rates likely to remain low for some time, the recent tightening in mortgage rules will help to cool credit growth and the housing market.”

Finance Minister Jim Flaherty announced in July that the maximum amortization period for government insured mortgages would be reduced to 25 years from 30 years.

Using an interest rate of three per cent, Ottawa estimated it would increase monthly payments by $184 on a $350,000 mortgage, but save the borrower $33,052 in interest over the life of the loan.

It was the fourth time Flaherty tightened mortgage requirements in four years, but the measure was regarded as the one likely to be the most effective.

The BMO poll found that 22 per cent of respondents are less likely to buy a new home in the next five years because of the changes, while 29 per cent said they would spend less on a home as a result of the new rules.

Homes sales have slowed significantly in the months since the latest rule change, while prices are steady.

The latest report from the Canadian Real Estate Association found that home sales in September fell 15.1 per cent from a year ago. But the national average home price was up 1.1 per cent to $355,777 in September from a year earlier.

Among those looking to buy in the next five years, one in five say they plan to downsize to a smaller home, while the same amount say they’d upgrade to a larger home. And 10 per cent said they plan to sell their home and move into a rental property, retirement home or in with family members.

Homeowners who responded to the BMO poll expect prices to rise by two per cent over the next year, though many respondents in Vancouver indicated they expected prices there to fall.

“Given that Vancouver is one of the priciest markets in the world, it’s not surprising that many people expect some correction,” said Guatieri.

The results of the BMO survey are from online interviews with a random sample of 1,011 Canadian homeowners conducted between Sept. 13 to 19.

It said a probability sample of this size would yield results accurate to plus or minus 3.1 per cent, 19 times out of 20.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Who is at highest risk of exposure to COVID-19? Firefighters, drivers, pharmacists, cooks

Central Alberta firefighter says virus taking toll on mental health

RCMP facing ‘systemic sustainability challenges’ due to provincial policing role

Federal share is approaching $750 million annually, up from $618 million in 2012-13

LIVE: Procession to honour Snowbirds Capt. Jennifer Casey comes to Halifax

Snowbirds service member died in a crash in Kamloops one week ago

Alberta government website has latest COVID-19 statistics

Red Deer Advocate readers can stay up to date on the COVID-19… Continue reading

N.S. fire crews continue battling ‘out-of-control’ Porters Lake blaze

Word of the fire first emerged early Saturday afternoon

Technology, representation butt heads amid debate over resuming Parliament

The Liberals are now proposing four meetings a week until June 17

Procession for Snowbirds crash victim makes its way through Halifax

The 35-year-old military public affairs officer and Halifax native died in the crash

The latest numbers on COVID-19 in Canada as of May 23

There are 83,621 confirmed and presumptive cases in Canada

Procession for Snowbirds crash victim to make its way through Halifax today

The military public affairs officer died in the Snowbirds Tutor jet crash in B.C. last Sunday

Employers worry about safety, cash flow, second wave in COVID-19 restart

Only eight per cent of employers were fully prepared to restart operations, survey finds

Liberals table proposal for expanded Commons COVID-19 meetings, summer sittings

OTTAWA — The Liberals have tabled a proposal that would see expanded… Continue reading

Most Read