Saturday, July 20, 2024

Victoria mortgage broker predicts reduced interest rate may increase home buyers’ confidence

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Last week, the Bank of Canada made their first cut to the ‘overnight lending interest rate’ since March 2020, which directly impacts homeowners and those seeking to buy a home of their own. 

The rate had been set at 5% to slow spending and subsequently bring down the rate of inflation. 

This overnight interest rate is the rate at which banks lend or borrow funds from the Bank of Canada, which in turn impacts mortgage rates as well as general borrowing rates for all Canadians. 

However, despite the rate change helping people’s confidence, it won’t help affordability with most people who have a mortgage, according to David Langlois, a local expert and Managing Broker at MacDonald Realty.

“It doesn’t have a significant financial impact, overnight rates aren’t necessarily related to a typical five-year mortgage product,” Langlois told Victoria Buzz. 

“It does provide a little bit of relief for people that are variable rate mortgages.”

He added that the majority of people end up taking fixed mortgage products, in which their rates are adjusted every five years and set in accordance with whatever the overnight lending interest rate is. 

So depending on when a mortgage is reassessed, this new rate may still be higher than what it had been when someone last had their rate adjusted. 


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Five years ago, in 2019, the overnight lending rate was 1.75% and currently, it is set at 4.75% — meaning a homeowner who was to have their fixed mortgage assessed today would still end up paying more despite the recent lowering. 

Things could continue to get better though, as Langlois predicts that the market is now entering a rate lowering cycle. 

“I wouldn’t be surprised with another ‘rate cut’ in July depending on what the rest of the economic numbers are,” Langlois said. 

“I think in September they’ll probably pause and see what effect that’s having as we go into the fall, but I think the general consensus is that we will see probably two, possibly three more cuts this year.”

He added that in Victoria and BC, the market has plenty going on, with some of this being from the recent ban on short-term rentals (STRs).

“That [STR ban] is adding to the excess inventory that we have in the smaller downtown units and we’ve certainly seen prices come down in that category,” he explained. 

“Like anything else, if you’re purchasing a suite to be a rental, it’s going to be based on the rental income that can be achieved — with the government stripping away those [STRs], they have stripped away a significant amount of value that went with those units.”

He concluded by saying that current numbers and stats tell him the market is pretty balanced right now in Victoria. 

According to Langlois, there is plenty of inventory, but when it is looked at historically, consideration must be taken for the amount the population has grown over the years. 

Does this rate cut inspire you to start taking a look at the market again and possibly taking a mortgage to buy a home?

Let us know in the comments!

mm
Curtis Blandy
curtis@victoriabuzz.com

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