How Newfoundland borrowers are handling the rising-rate environment

How have mortgage holders in the easternmost province been faring as rates continue to soar?

How Newfoundland borrowers are handling the rising-rate environment

Things may be calmer on the mortgage front in Newfoundland and Labrador than in some of Canada’s hottest markets – but plenty of clients are still seeking assurances from their agents and brokers that the strategy they’re pursuing on their mortgage is the right one, according to a broker based in the province.

Andrew Knee (pictured), mortgage broker at East Coast Mortgage Brokers in St. John’s, told Canadian Mortgage Professional that his team had “absolutely” had an uptick in calls from clients about their interest rate in the wake of the Bank of Canada’s January decision, which saw its benchmark rate climb by 25 basis points.

“With the amount of increases in such a short period of time, clients want to be reassured they are doing the right thing,” he said. “More and more clients are following the mortgage news than ever before.”

On the fixed-vs-variable question, advice varies from client to client, according to Knee – although the Bank of Canada’s rapid increases to its trendsetting rate, which variable rates usually follow closely, means there’s less of a case to be made for variable options than before.

 “Each call is a little different from the last. I make sure they are getting the right rate for their situation,” he said. “It’s very hard to justify a variable rate right now. The short-term fixed have been more popular than ever, with such a large gap between the fixed and variable.”

How is Newfoundland’s greater affordability helping borrowers there?

Many Canadians who took out a mortgage in 2020, when interest rates were at a rock-bottom low, have seen their monthly payments rise precipitously over the last year amidst that flurry of rate increases by the Bank of Canada.

The fact that most mortgages are considerably more affordable in Newfoundland than many other parts of the country means that it’s less of a problem for many borrowers than elsewhere in Canada, Knee said, although that’s not to suggest that clients aren’t concerned about how things may pan out in the future.

“People worry by nature and the last couple of years have been hard on a lot of people, so it didn’t come as a surprise to us,” he said. “We try and speak with as many people as possible.

“Some are feeling cornered or overwhelmed and some just want to pick your brain and get a feel for what’s to come. For the majority, the monthly increases have been a little easier to manage due to Newfoundland’s lower mortgage amounts compared to other parts of the country.”

Still, there’s some room for optimism on the horizon, especially with the possibility that rate hikes look set to pause for now, inflation ticking slowly downwards, and a still-resilient mortgage market in Newfoundland, Knee said.

“Based on the Bank of Canada’s tone, the most recent CPI [consumer price index] numbers and with our January mortgage volume stronger than expected, many believe the worst is over or close to being over regarding rate hikes,” he said. “St. John’s, Newfoundland and surrounding areas continue to be a very stable market.”

How is the Newfoundland market faring compared with the rest of Canada?

In its latest resale housing market forecast, the Canadian Real Estate Association (CREA) identified Newfoundland and Labrador as one of the Canadian markets that has seen prices remain resilient amidst a wider national cooldown, alongside Alberta and Saskatchewan.

While December saw a sharp decline in the number of homes that changed hands in the province compared with the same month in 2021, home sales remained 17.4% above the five-year average, CREA said.

Home sales in 2022 posted a 7.1% decrease over the number of units sold the previous year, although that was a drop in the water compared to Toronto, which saw home sales plummet by 38.2% last year, and Vancouver, where homebuying activity dropped by 34.3%.

The most comprehensive annual average price of a home in Newfoundland, meanwhile, increased by 6.7% last year compared with 2021, indicating that the province had largely withstood the big correction in home prices witnessed elsewhere.

How is your market shaping up for 2023? Let us know your outlook for the year ahead in the comments section below.