Pandemic Mortgage Rates, Explained

At the end of December, HSBC came out with a variable mortgage rate of 0.99%. According to experts quoted by the CBC, it was the first time ever that rates have dropped below 1% in Canada.

That rate was only available to buyers borrowing a lot (who were putting less than 20% down on their home), and that rate would change over the course of the five-year closed term, but nevertheless, the figure was, in the words of co-founder James Laird, “eye-catching.”

The Bank of Canada lowered interest rates in March and April of 2020 as the housing market and the broader economy began to flag. The pandemic, and public health measures meant to curb it, shut down entire sectors of the economy and stifled the flow of money into the country. Business was put on pause, for some indefinitely, and many people lost their jobs. The country’s economic engine slowed at a rate not seen during any recession in history.

The Bank of Canada controls interest rates as measure to manage the economy. By making borrowing cheaper (like for mortgages) the more attractive it becomes for people to do so. However, that also raises the risk that people will borrow who will be unable to repay. That repayment is what keeps the gears of the economy in motion. Fortunately, Canada’s housing market remains tightly regulated which means that the odds of people picking up a mortgage they can’t continue to pay is low.

Conversely, when the economy is strong and more people are buying, the bank of Canada may increase interest rates to slow borrowing and fend off inflation. That’s what happened in the early 1980’s, when some mortgage rates exceeded 21%.

With lower mortgage rates people can afford more expensive housing, which is a huge consideration in the Greater Toronto Area where you need to have considerable savings to enter the marker. In the city of Toronto itself, the average price of a single detached home remains well north of $1 million—an impossible sum for many prospective homeowners under 35.

Though the pandemic has led to price drops in the downtown condo market, prices on homes across the GTA hardly dropped at all. In fact, prices are expected to rise over the next year, and the trend is expected to continue as vaccines rollout and pandemic restrictions are lifted.

Low interest rates will give more young buyers a way into that market. The Bank of Canada suggests that mortgage rates, which are now around 2%, will remain low until 2023, which makes this a good time for young people to find a home. And not just a home, but an investment that will continue to increase in value for years yet.

If you’re looking to enter the housing market, we have the expertise to help you land the home that’s right for you. Contact one of Capital North’s associates.