Five-year rates in Canada will experience increases of as much as 25 basis points by next year due to the uncertainty surrounding Donald Trump’s ascension to the U.S. presidency along with the recent changes to federal regulations governing mortgages, the British Columbia Real Estate Association warned.
In a December 12 report, the BCREA said that Trump’s campaign promise to cut taxes and increase infrastructure spending will lead to a greater deficit that might compel the U.S. treasury to ramp up borrowing in international bond markets.
“This means that the Canadian government, which has deficit plans of its own, will be forced to compete much harder for global capital by offering higher interest rates to investors,” the BCREA stated in its report, as quoted by Business in Vancouver
Yields of 5- and 10-year government bonds in both sides of the border have grown by nearly 50 basis points since the November 8 polls.
“The five-year qualifying rate could see a minor uptick in the next one-to-two quarters given the recent increase in Canadian five-year government bond yields, though the fundamental change in the importance of the qualifying rate presents a challenge to forecasting,” BCREA said.
The association also predicted that the new rules on mortgage qualification will lead to the five-year mortgage rate growing from 3.7 per cent to 3.95 per cent in the next 12 months, and the five-year qualifying rate rising to 4.84 per cent by the end of 2017.
“The change in qualification rules for homebuyers means that the posted five-year rate has become much more binding and will now have a more immediate and impactful effect on mortgage demand than in the past,” the BCREA warned.
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