Nearly 1 in 4 homeowners would have to sell home if interest rates rise more: Survey

With interest rates on the rise and the cost of groceries going up, many people are already on the brink of not having enough money to pay monthly bills — meaning big risks for the housing market.

Nearly one in four homeowners say they will have to sell their home if interest rates go up further, according to a new debt survey from Manulife Bank of Canada.

The survey, conducted between April 14 and April 20, also found that 18 per cent of homeowners polled are already at a stage where they can’t afford their homes.

Over one in five Canadians expect rising interest rates to have a “significant negative impact” on their overall mortgage, debt and financial situation, the survey found. More than half say they feel ill-prepared for the rising rates, inflation, and increasing house prices.

“The survey revealed nearly one third of Canadians admit they don’t understand how inflation or interest rates work, close to three in four do not have a written financial plan and almost half do not have a household budget,” said Lysa Fitzgerald, Vice President of Sales, Manulife Bank.

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• May home sales in Toronto down 39% from 2021, prices up almost 10%

The Manulife survey also found that two-thirds of Canadians do not view home ownership as affordable in their local community.

Nearly half of Canadians said they would struggle to handle any surprise expenses or are reconsidering summer vacation plans due to affordability concerns.

“In the past few years, we’ve seen a huge shift in the housing market, and in parallel we’re witnessing interest rates and inflation rising – all contributing to concerns around Canadian home ownership, affordability and Canadians’ mental health,” said Fitzgerald.

The survey found close to half of indebted Canadians say debt is impacting their mental health.

The annual pace of inflation rose to 6.8 per cent in April, the fastest year-over-year rise in 31 years, as the price of goods from gas to groceries continued to climb. On June 1, the central bank increased its key interest rate by half a percentage point to 1.5 per cent.

The deputy governor of the Bank of Canada says it may need to raise its key interest rate to three per cent or beyond to ensure inflation does not become entrenched.

Paul Beaudry says supply chain disruptions during the COVID-19 pandemic lasted longer than most anticipated and those issues have only been exacerbated by Russia’s invasion of Ukraine and recent pandemic lockdowns in China. The issues have forced banks to scramble to put a cap on the surging prices.

He says higher interest rates would bring demand and supply into balance and ease inflationary pressures.