Due to the increase in interest rates, mortgage loans could jump by 45%, a source of anxiety for new homeowners.
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From 1999 to 2019, the Canadian household debt ratio nearly doubled. With soaring interest rates, including the key rate, mortgage rates will rise sharply, hence the Bank of Canada’s concern.
“The alert comes from the Bank of Canada, which is very worrying and surprising. (…) From 2020 to 2021, 1.4 million households took out mortgages with the new rates. At the time, when you bought a property at a high price with a variable rate of 1 or 2% or a mortgage at 3%, it was not so bad even if a person had tight finances,” explains Michel Girard, economic columnist for the Journal de Montréal.
According to the columnist, the price of houses could fall, representing a potential problem for people in debt.
“There could be a very marked drop in house prices. The problem is not for those who have been owners for 15 or 20 years, but for those who are in debt. If there are sales of fire or repossessions, it is likely to be reflected again as in 2008, ”he believes.
Consequently, the financial system would be a victim, according to the columnist.
“It’s a financial shock that could translate into a recession, everyone would suffer (…) It’s madness to see that house prices have increased in two years by 50 to 90%. This is where it no longer holds. It is the buyers of a new property who are at the stick and who risk dragging the rest of the economy into recession,” he thinks.
See the full interview above.
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