How will rising interest rates impact B.C.'s housing market?

As expected, the Bank of Canada has raised its key lending rate by half a percentage point to one per cent – the biggest increase in more than two decades.

The bank said Russia’s attack on Ukraine will elevate inflation for longer than initially expected.

Nolan Smith, who owns Oceanvale Mortgage and Finance, told CTV News people may be worried about their mortgage payments mostly because of what they're reading online.

“I think people are panicking more now of the upswing in variable rates because we have so much mortgage debt now, you know, housing prices that have been crazy, and mortgages are getting bigger and bigger,” Smith said.

Part of the worry, he added, was that many people are used to 2.45 per cent as the prime rate for lending.

“Which is just insanity,” he said. “You know, back in ’08 it was six per cent. And you know, then it was four (per cent) and four was low.”

Asked about the rate hike, federal Finance Minister Chrystia Freeland said financial controls are in place to make sure mortgages don't go underwater.

“We have stress tests designed to be sure anyone taking out a mortgage could get through a period of higher interest rates,” said Freeland.

Those looking to buy a home may find things getting worse before they get better as some buyers look to lock in lower rates from pre-approvals.

Bryan Yu, the chief economist for Central One Credit Union, said he and others expect another rate hike later this year.

“(At that time) a lot of these rate holds are no longer going to be available for these buyers. So that, I think, is when we could see softening in prices,” he said.

Yu also pointed out that home buyers will qualify for smaller mortgages. This comes as real estate prices, for many, are already out of reach.

“I wouldn't be surprised, again, given the run up we've had in home prices during a pandemic, that some markets could see anywhere from five to 10 per cent declines just as a result of some of the excess buying earlier this year,” Yu added.

Smith said some clients are choosing to switch from a fixed-rate mortgage, which is typically higher, to lower-cost variables. But that may not work for everyone. His advice to borrowers is just relax.

“I believe a quarter-per-cent increase in prime rate, it only raises your payment 12 bucks per 100 grand.”