‘They’re drowning’: Latest interest rate hike hits B.C., Canadian homeowners hard

Tiffany Verhagen moved to Edmonton from Victoria a few years ago for a job in the oil sands.

She and her husband Jason saved up and bought a house.

But for an adjustable-rate mortgage, they’ve been squeezed by the Bank of Canada’s last 10 rate hikes, the latest of which came with a bang on Wednesday.

A flood in her basement apartment has also wiped out $2,100 a month in rental income, and the 37-year-old has also taken out a $30,000 loan to pay for fertility treatments.

From Fort McMurray, where she works as a chef, Verhagen said she expects to find a letter when she returns home saying her mortgage payments have gone up again. The debt has become so uncontrollable that Verhagen and her husband are threatened with foreclosure.

“I wasn’t sleeping, that’s for sure,” she said.

The recent rate hike has marginalized more Canadians, forcing them to consolidate their debt and consider consumer proposals to avert bankruptcy, bankruptcy trustee Chris Sinclair said.

“It’s pretty heartbreaking,” said Sinclair, a North Shore resident who works for Smythe Insolvency.

Sinclair said he’s never seen such a scary financial picture for homeowners in his 14 years in the business.

The central bank last week raised interest rates by a quarter of a point to 5 percent, the highest level since 2001. The tenth straight rate hike since March 2022 suggests it is taking longer than expected to bring inflation back down to 2 percent .

Victoria-based mortgage broker Elizabeth Prins said clients who took out adjustable-rate mortgages were struggling.

“They’re drowning,” she said. “I’ve spoken to customers who have had to use credit cards to shop for groceries.”

For example, someone with a $700,000 mortgage and an interest rate of 3 percent would have paid $3,300 a month. Her monthly payments would now be $4,600 at an interest rate of 6.3 percent.

Matt Eide, a Victoria-based real estate agent with Newport Realty, has five properties totaling 17 rental suites. Four of his mortgages have adjustable rates, meaning his mortgage payments have increased by at least $4,000 a month.

The higher borrowing costs not only hurt homeowners, he said, but would also impact renters through higher rents.

“It’s important to emphasize that these rate increases aren’t just affecting landlords and homeowners,” Eide said. “Ultimately, this also applies to the tenants.”

British Columbia Prime Minister David Eby said the recent rate hike was “devastating news for families” and he did not believe in “solutions that come at the expense of the poorest people”.

“You really have to wonder when the Bank of Canada is going to pause and see what the impact is going to be. We haven’t seen the full impact yet. People haven’t rolled over their mortgages yet and the companies suffering from debt haven’t gone bankrupt. But they will. Those jobs will be lost.”

Eby said the Bank of Canada shouldn’t use just one tool to contain inflation, because so far it’s been “paid for by the most vulnerable families and businesses that are really struggling.”

Marc Lee, senior economist at the British Columbia branch of the Canadian Center for Policy Alternatives, fears the Bank of Canada’s strategy could be counterproductive and a source of inflation rather than a balm.

“What we’ve been arguing about and looking at the numbers is that most of the inflation that we’ve seen over the last year and a half is actually coming from outside Canada’s borders,” Lee said, citing the Russian invasion of Ukraine and their impact on energy prices and supply chain issues caused by the pandemic.

Lee said it’s clear the central bank is trying to rein in consumer spending and economic growth as much as possible without triggering a recession.

“If we go into a recession and the unemployment rate goes up a few percentage points, it will impact the livelihoods of hundreds of thousands of people. Then these are people who may not be able to afford their mortgages,” Lee said. “On impact there is recoil, so it’s a very dangerous game that Bank of Canada is playing.”

With files from The Canadian Press