As Canadian workers try to find ways to deal with increased gas prices and food prices, they now have a new worry to face—increased mortgages and rent. In an attempt to curb the rising inflation rate in Canada, the Bank of Canada (BoC) has implemented the sharpest increase in interest rates in its history. The rate hike has caused banks and mortgage lenders across the country to also increase their interest rates, which is being reflected in rising payments on existing mortgages. Today, it has become almost impossible for the average Canadian to afford a home.
The BoC overnight interest rate has now gone up to 4.25 per cent, and it’s quite likely there will be further increases down the road. With the employment rate remaining higher than expected in December 2022, another rate hike is all but a given. The idea is that with credit more expensive, there will be less spending, and therefore lower demand, which eventually would lower prices and decrease inflation. This cold logic hides a harsh truth. What it really means is that the working class is forced to bear the cost of the economic crisis, whether through inflated costs of goods, higher mortgage payments, or both.
Those who are being hit particularly hard are borrowers with variable rate mortgages who took advantage of the previously low interest rates. According to the BoC, this accounts for 30 per cent of all mortgages in Canada. The BoC also estimated that in November 2022, half of Canadians who have a variable rate mortgage hit their “trigger rate”, meaning they are no longer paying down the original loan, only the interest. By 2023 this number is expected to rise to 65 per cent. Put simply, working class Canadians will see a drastic increase to their monthly mortgage payments.
For a standard variable rate mortgage, the borrower makes consistent month-to-month payments, but the amount that goes to paying back the principal (I.e. the amount of money the borrower actually borrowed) versus what goes to paying the interest changes with the interest rate. The trigger rate is reached when monthly payments are no longer higher than the interest charges on the loan. What happens when this point is reached changes from lender to lender, but the most common solution is for the lender to increase the monthly payments, which many cannot afford.
This misery is becoming more apparent every day. CTV News published an article with examples of the effect the increases in interest rates are having. Some families have seen their mortgage payments increase by more than $1,000. Others are now being forced to work second or even third jobs just to make ends meet.
Scotiabank is expecting around 20,000 mortgage owners to default on their loans from their customer base alone, and the bank is expecting a million more to face difficulty paying their mortgages. The numbers are similar for the rest of Canada’s major banks.
Faced with these huge increases to their monthly payments, some working class families are also having to make the tough decision to sell their homes. This decision is now even tougher as house prices have been steadily falling all across Canada. Selling now might mean selling at a loss, completely eroding any built-up equity and facing a difficult rental market.
While millions of workers in Canada are facing high mortgage payments, many more are facing skyrocketing rent prices. The average rent in Canada, across all types of properties, in October 2022 was $1,976. Rental prices in Canada have seen an increase of 11.9 per cent, far surpassing the current inflation rate of 6.9 per cent. Atlantic Canada, in particular, has been the hardest hit, with a 32.2 per cent increase in rent prices in the past year. Ironically, one of the driving factors of rent increases is higher interest rates. Landlords have been trying to pass their increasing mortgage payments onto their renters. Almost all economists agree that rent should never make up more than half your wages, but sky-high rents are forcing the majority of Canadian workers who rent into this precarious position.
The threat of homelessness is real, and workers are feeling it. However, workers are willing to go to any lengths to not be left out in the cold, including eating the bare minimum amount of food, cutting out all forms of entertainment, or spending every waking hour working. This suits the capitalist class just fine. They know that desperate workers are more exploitable workers.
Organizing for better wages and conditions is the only way workers will be able to afford a home. We must bring back our militant traditions of strikes, solidarity strikes, and even general strikes in order to win and secure higher wages and job security, so that working people can afford a place to live. Ultimately, the way forward is socialism, where those that create all the wealth can use it to benefit society as a whole instead of a few capitalists; where housing is not bought up and hoarded by speculators and parasitic landlords. This way we can create a world where people don’t have to subject themselves to misery and degradation to ensure they have some place to live. We can build a society where housing is truly a fundamental human right, and not a cash cow for the ruling class.