Vancouver Sun – April 12, 2005

Page: D4
Section: BusinessBC
Byline: Michael McCullough
 
B.C. homeowners are far more likely than other Canadians to hold variable-rate mortgages, according to a new survey.

CIBC released the findings, part of its annual home ownership poll, on Monday in advance of today's Bank of Canada interest-rate announcement.

Among the results, nearly one-half of Canadian homeowners expect mortgage rates will rise this year, even though the Bank of Canada is expected to keep its trendsetting rate steady today, and for much of the year.

Regardless, the vast majority of homeowners -- 81 per cent -- also say they can handle higher mortgage rates, even if they rise as much as two percentage points.

In most areas, B.C. respondents reflected the national average, but not with respect to the kind of mortgage they currently hold. There, 37 per cent of British Columbians said they had a variable-rate mortgage, compared to 27 per cent across Canada.

The results contrast with a poll published last fall by BMO Financial and Ipsos-Reid that indicated 24 per cent of B.C. homeowners go for variable-rate mortgages, slightly more than the Canadian average of 22 per cent. The CIBC survey had double the sample size (2,150 respondents), however, and is considered accurate within 2.11 percentage points, 19 times out of 20.

Although he does not see any difference in borrowing behaviour in B.C. versus other provinces, Gord Dahlen, western vice-president for mortgage brokerage Invis, says between 50 and 55 per cent of new mortgages and renewals are for variable-rate products.

"Variable rates have been in play now for five years," he noted, and today's spread of 1.25 percentage points between fixed and variable rates makes the floating-rate loans "still very compelling."

In theory, a higher use of variable-rate product could make B.C.'s housing market more vulnerable to interest-rate swings, but Dahlen said that fear is outweighed right now by positive market fundamentals.

"I don't think people are worried about interest rates," he said.

While the CIBC poll indicates variable-rate mortgage holders are in the minority across the country, and 55 per cent think a higher, fixed-rate mortgage is the best strategy to follow, 57 per cent say they would save more over the longer term with a variable-rate mortgage.

"Most Canadian homeowners think that a variable-rate mortgage can save them money, and we are seeing more of them choose that type of mortgage," said CIBC vice-president Paul Mims. "But some people would rather pay a bit of a premium to have the security of a fixed rate."

Industry research suggests that since the mid-1980s, homeowners were significantly more likely to have saved money with a floating than a fixed-rate mortgage, CIBC noted.

Interest-rate increases would not surprise the 48 per cent of homeowners who expect mortgage rates to move higher this year. Only 41 per cent expect rates will remain steady.

"On average, homeowners say mortgage rates need to reach 9.75 per cent to become unaffordable, and that doesn't look like it's in the cards anytime soon," said Mims. 
 

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