Interest Rate Hikes Eroding Housing Affordability

Marci • July 13, 2018

After improving slightly late last year, housing affordability has now reached “crisis levels” in Vancouver and is posing a “tremendous challenge” in Toronto.

That’s the assessment from RBC’s latest Housing Trends and Affordability report, which says higher interest rates are the main reason for a deterioration in affordability right across the country.

“The winning streak for housing affordability in Canada ended,” the report reads, noting the aggregate affordability measure for Canada rose by 0.4 percentage points to 48.4% in Q1. “This rise entirely reversed the slight 0.3 percentage-point decline recorded in the previous quarter—the first decline in 10 quarters.”

Unsurprisingly, Toronto and Vancouver led the way as the country’s least affordable markets.

In Vancouver it takes 87.8% of household income to cover the costs of home ownership, the report said, while in Toronto that percentage is 74.2%. Compare that against the national average of 48.4%, or 43.7% in Montreal, 43% in Calgary and just 28% in Edmonton.

“[Affordability] is at crisis levels in Vancouver and poses a tremendous challenge for many Toronto-area buyers despite improving in the past two quarters,” the report noted.

Overall, higher interest rates were cited as the main factor for sending homeownership costs to a multi-decade high, while the situation was amplified in both Vancouver and Victoria due to a return to appreciating prices.

Although affordability in Toronto remains a concern, the report noted that it was one of only two markets, along with Winnipeg, to see a small improvement.

“The main reason was that home prices fell enough in both markets to counteract the effect of higher interest rates,” RBC noted. “In the case of the Toronto area, the mortgage stress test that came into effect in January added further downward pressure on property values—which were still adjusting to last year’s Fair Housing Plan implemented by the Ontario government.”

But that may not be the case for much longer, as the Toronto Real Estate Board’s latest data shows the average price of a home in the Greater Toronto Area climbed to a 13-month high in June—up 2 percent year-over-year to $807,871.

National Bank published similar findings to RBC recently in its Housing Affordability Monitor. It noted that the mortgage payment on a representative home as a percentage of median income rose by 1.2 points—the 11th straight month that this metric had increased.

Given the limited capacity for Vancouver and Toronto homebuyers to put more of their income towards housing than they already are, the National Bank report concluded that prices could start to decline should interest rates continue to increase.

“Since we don’t see how Vancouver and Toronto homebuyers could pay a higher share of their incomes for shelter, a downward adjustment of prices is conceivable,” the authors write. “If our scenario for interest rates out to the end of 2019 materializes (+75 basis point on the 5-year mortgage rate), and assuming historically average income growth, prices would need to fall on the order of 2% to keep home affordability from deteriorating further.”

 

This article was written by Steve Huebl and was originally published on Canadian Mortgage Trends on July 5th 2018. 

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How Property Type and Condition Influence Mortgage Financing

By Marci Deane • September 30, 2026
Why the Property Matters When You’re Qualifying for a Mortgage When qualifying for a mortgage, lenders typically look at four core areas: Income Credit Down payment or equity The property itself Most buyers focus heavily on income, credit, and savings—and for good reason. But even if those boxes are checked, the property can still determine whether a mortgage is approved. Why Lenders Care About the Property From a lender’s perspective, the property is the collateral for the mortgage. In the unlikely event of default, they need to know the home can be sold quickly and at fair market value to recover their funds. Because of this, lenders are careful about the condition, value, and marketability of any property they finance. Homes that are in poor repair, unconventional, or overpriced can raise red flags—even when the borrower is well qualified. Appraisals Are Always Part of the Process Every mortgage requires an appraisal to confirm value. Insured mortgages (through CMHC, Sagen, or Canada Guaranty) often use an automated valuation model completed online. Conventional mortgages typically require a full, on-site appraisal by a certified appraiser. This appraisal is not optional and happens after an offer is accepted—not at the pre-approval stage. Why Pre-Approvals Aren’t a Guarantee A pre-approval is a great first step, but it only assesses you, not the property. Once you’ve made an offer, the lender must approve the specific home you’re buying. Understanding this upfront helps avoid surprises and confusion later in the process. The Risk of Buying Without a Financing Condition In competitive markets, buyers sometimes remove financing conditions to strengthen their offer. However, this comes with risk. If the appraisal comes back low—or the lender is concerned about the property’s condition—you could be denied financing after the offer is firm. In that scenario, your deposit may be at risk. Buying a Home That Needs Work If you’re considering a property that isn’t in perfect condition, there are solutions. A purchase plus improvements program allows you to buy a home and include renovation costs in your mortgage. The process is structured and requires planning, but it can be an excellent way to turn a fixer-upper into a great long-term investment. Final Thoughts Mortgage approval isn’t based solely on your finances—the property matters just as much. Knowing this ahead of time helps you make smarter offers, reduce risk, and plan more effectively. If you’re buying a property that needs work or want clarity on how a lender may view a specific home, feel free to reach out. I’d be happy to walk you through your options and help you plan with confidence.

What You Need to Know About Mortgages and Parental Leave

By Marci Deane • September 23, 2026
If the title of this article caught your attention, chances are your family is growing. Congratulations. If you’re thinking now is the right time to move into a home that better fits your growing family—but you’re unsure how parental leave affects your ability to qualify for a mortgage—you’re in the right place. Here’s the good news. Qualifying for a mortgage while on parental leave is possible when it’s done correctly. When you work with an independent mortgage professional, lenders can often qualify you based on your return-to-work income , as long as you can provide documentation confirming you have guaranteed employment waiting for you. A word of caution If you walk into a bank branch and disclose that you’re currently on parental leave, there’s a chance the bank will only allow you to qualify using your parental leave income. That can significantly reduce your borrowing power. Parental leave income is typically limited to 55% of your previous earnings, up to a weekly maximum. Qualifying on that amount alone can restrict your options and impact the type of home you can purchase. Why lender choice matters One of the biggest advantages of working with an independent mortgage professional is choice . You’re not limited to one lender’s rules or products. Some lenders will allow you to qualify using 100% of your confirmed return-to-work income , which can make a meaningful difference in your approval amount and overall options. What you’ll need to qualify Most lenders will require an employment letter that includes: Employer name (preferably on company letterhead) Your job title Original start date (to confirm probation has been completed) Confirmed return-to-work date Guaranteed salary upon return Lenders want reassurance that your income will resume once parental leave ends. You may also be asked to provide income history from the past couple of years, which is standard for most mortgage applications. One important note Whether or not you actually return to work after parental leave is entirely your decision. From a mortgage perspective, qualification is based on having a confirmed position available to you at the time of approval. If you have questions about qualifying for a mortgage while on parental leave—or anything mortgage-related—please connect anytime. I’d be happy to walk you through your options and help you plan with confidence.

Need Funds Between Buying and Selling? Here’s How Deposit Loans & Bridge Financing Help

By Marci Deane • September 16, 2026
You’ve outgrown your current home. It no longer fits your life, so moving makes sense. And you’re not interested in juggling two properties. Selling first and buying something new feels like the right move. Ideally, you want possession of the new home before leaving the old one. That overlap makes moving easier, reduces stress, and gives you time to paint, renovate, or settle in before the boxes arrive. But there’s a common challenge. What if the down payment for your next home is tied up in the equity of the one you’re selling? That’s where bridge financing comes in. How bridge financing works Bridge financing temporarily unlocks equity from your current home once it has a firm sale . It bridges the gap between selling your existing property and purchasing your next one, allowing you to use that equity toward your down payment. What about competitive markets? In a hot market, a strong offer often means a larger deposit . If you don’t have that cash sitting in your account, but you do have equity, a deposit loan can help you compete with confidence. The non-negotiable requirement To qualify for bridge financing or a deposit loan, your current home must have a firm, unconditional sale . No firm sale = no bridge or deposit loan. Lenders need certainty to calculate available equity and manage risk. Bottom line A firm sale is the key that unlocks bridge financing and deposit loans. If you’re planning a move and want to understand how these options could work for you, let’s talk. I’m always happy to walk you through your options and help you plan your next step with confidence.