Can a single rate cut make waves in Canada’s housing market? What to know
The Bank of Canada’s first interest rate cut in over four years on Wednesday will have a “psychological” impact on the Canadian housing market, but will likely not be enough to meaningfully improve affordability, experts say.
The Bank of Canada cut its key policy rate, which informs the rates Canadians pay on loans like mortgages, by 25 basis points to 4.75 per cent.
“Canadians have not had a rate cut from our central bank since the early days of the pandemic,” says James Laird, co-CEO of Ratehub.ca. “This is a huge move that we are now into a declining rate environment.”
In general, the higher the Bank of Canada’s benchmark rate sits, the more Canadians who are taking out or renewing mortgages will pay on a monthly basis. Lenders in Canada base the rates they are offering on many mortgages and other loans on their prime rates, which move in concert with the central bank’s rate.
All of the big six Canadian banks cut their prime rates by a quarter-percentage point in the wake of the Bank of Canada’s rate cut on Wednesday.
Higher interest rates also affect how much Canadians can qualify for a mortgage when they’re looking to buy a home, making this a key barrier to housing affordability.
Laird says that for prospective buyers who have been sidelined by higher interest rates over the past two years, the impact of a single 25-basis-point rate cut will be “marginal” but not a “dramatic help.”
“If you were nowhere close to qualifying for a home, you’re not going to qualify still,” he says, noting that some qualified buyers might be able to afford a little bit more than they would have previously.
Homeowners with variable-rate mortgages are expected to see the most immediate relief from the Bank of Canada’s rate cut. Those with
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