Interest rates

In a Hurry: The Reality of Higher Interest Rates Is Almost Here — and Canadians Are Worried

Good morning!

The reality of higher interest rates is almost there.

The Bank of Canada meets next week, and the market is almost certain that a rally is in the cards.

And now, after almost two years of low rates, that reality is sinking in for a growing number of Canadians, according to a new survey.

More than half (55%) of respondents in the survey conducted for insolvency accounting firm MNP Ltd. worried about the impact of rising interest rates on their finances, an increase of three percentage points from September.

Those due to renew their mortgage next year are particularly worried, with 61% saying that if their borrowing costs go up much more, they fear financial hardship.

Thirty-five percent of respondents agree that rising rates could push them into bankruptcy.

“As we approach what will likely be the first of several interest rate increases over the coming year, more and more Canadians are concerned about how they will fare,” said said Grant Bazian, President of MNP LTD. “Additional debt servicing costs come at a time when many Canadians are already finding it less affordable to feed their families or pay for things like housing.

Almost half of Canadians say they are already starting to feel the effects of the higher rates.

Since September, the average five-year fixed rate has risen from a low of 1.94% to 2.79%, according to Capital Economics.

Robert McLister of said fixed borrowing costs will continue to rise.

“We are fast running out of lenders who offer 5-year fixed rates with a two-handed grip,” McLister wrote in Mortgage Trends in Canada earlier this month. “There is only one lender left in the national brokerage channel at 2.99% for a standard uninsured 5-year fixed, according to Lender Spotlight. Just 12 months ago we were at record highs of 1.84% paying full compensation. »

So how far will they go?

Bank of America analysts expect the Bank of Canada to raise its key rate by 25 basis points on March 2, but “there is a high risk that it will rise by 50 basis points.”

BofA analyst Carlos Capistran said they were sticking to a quarter-point base case despite high inflation due to the hit to the economy from the Omicron outbreak and because they expect “many” hikes from Canada’s central bank.

BofA raised its forecast to six hikes this year – at all remaining meetings except December – and four hikes in 2023 to 2.75%.

Others see something a little less aggressive. Capital Economics predicts that interest rates will cap in Canada at 2.2%.

“Holders of variable rate mortgages will be the most affected. Especially if we are talking about a series of rate increases in 2022,” said Bazian of MNP. “Households may have to readjust their budgets to account for hundreds or thousands of dollars more per year in mortgage costs.”

What makes these hikes even more daunting for Canadians is that household finances have already been strained by the impact of COVID and the rising cost of living, MNP said.

“Canadian households struggling with debt aren’t the only ones worried about the impact of rising interest rates. The rising cost of living is likely to make even those who are more financially secure feel uneasy about the impact of rate hikes. said Bazian.

The survey also revealed that Canadians find everyday living less affordable. Forty-seven percent said this about food for their family, 40% about clothing and other household necessities, 36% about transportation, and 35% about housing.

In an Angus Reid poll this morning, 46% of Canadians say they are turning to cheaper brands to save on food costs, a third (35%) are reducing their meat consumption and one in five (21%) are buying less fresh fruits and vegetables.