Expected wave of mortgage renewals contributed to latest rate hold: Bank of Canada

The large number of mortgages coming up for renewal at higher rates is one reason why the Bank of Canada decided to leave its target rate unchanged at 5.00% last month.

Bank of Canada Governor Tiff Macklem made the comment Wednesday while testifying before the Standing Senate Committee on Banking, Commerce and the Economy.

“One of the important reasons why we held our policy rate at 5% is that we know that those renewals are coming…we know that there’s more to come from what we’ve already done,” Macklem said.

“Is there a risk that it bites more than we think? Yes, there is,” he added. “But there’s also a risk that households have some extra savings, they’re able to [handle those payments] and still consume. So we’re trying to balance [those risks].”

Analysts estimate about $251 billion in mortgages will come up for renewal in 2024, with another $352 billion worth in 2025.

According to the Bank’s own data, 40% of mortgage-holders have already seen their mortgage renew at a higher rate.

Senior Deputy Governor Carolyn Rogers noted consumer surveys and news reports are highlighting some of the extreme cases of stress where borrowers are renewing at “significantly higher” rates.

But she also told the senate committee that the Bank’s data paints a different picture of households so far being able to manage their payments.

“When we look at the data that we monitor to see the degree of stress that’s being put on households—certainly there’s pressure and we wouldn’t want to minimize it—but we’re not seeing anything in the data that would suggest that households are under a significant increase in the amount of stress,” she said.

She pointed to delinquencies, which, while rising slowly, still remain below pre-pandemic levels.

Rogers added that many homeowners have so far been able to manage higher monthly payments thanks in part to excess savings they had accumulated during the pandemic. “A lot of Canadians are actually paying down their mortgage or taking some of that savings and paying down the mortgage, either in a lump sum or that savings is helping them support higher payments.”

She also pointed to higher wages and the fact that many households have seen the value of their home equity increase as other factors that have helped them deal with higher rates.

Source: https://www.canadianmortgagetrends.com/2023/11/expected-wave-of-mortgage-renewals-contributed-to-latest-rate-hold-bank-of-canada/?utm_campaign=Daily%20News&utm_medium=email&_hsmi=280936521&utm_content=280936521&utm_source=hs_email