In the majority of Canadian cities, skyrocketing home prices have defined the real estate market over the past decade. For first-time home buyers this has left many out in the cold, with the dream of homeownership seeming more and more like a pipe dream.

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In 2022 we began to see new real estate trends emerge. Arguably the most notable trend and shift in the market has been the rise in interest rates by the Bank of Canada. In July, the Bank of Canada raised interest rates by over 1% for the fourth consecutive increase since March 2022. And in September announced a fifth rate increase. 

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So what do these rising interest rates mean for first-time home buyers and homeowners? In an already challenging market, we’re now faced with an even larger barrier when it comes to qualifying for and servicing a mortgage. Let’s dig in.

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How rising interest rates impact first-time home buyers

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Qualifying for a mortgage remains one of the largest barriers to entering the housing market for many Canadians. If you’re self-employed, this can be especially difficult as lenders often see you as a greater risk. 

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Higher interest rates make qualifying for a mortgage even more challenging as interest rates impact the rate at which Canadian banks will lend money to businesses and individuals. 

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For first-time home buyers any increase in interest rates will reduce the amount you can afford, because your carrying cost will increase.. This means you may not be able to qualify for as large a mortgage as you could’ve in the past, or when you do qualify your monthly payments will be more than they would have been at a lower interest rate and as a result a smaller portion of your payment will be going towards paying down your principle.

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How rising interest rates impact homeowners

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For homeowners, rising interest rates could mean more expensive monthly mortgage payments depending on the type of mortgage you have. 

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For example, if you have a variable mortgage your mortgage rate will increase as interest rates rise. This means higher monthly payments, but when your term ends and it's time for renewal you won’t be faced with as large an increase.

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In contrast, if you have a fixed mortgage rate, you will not see your mortgage rates rise during your mortgage term, but when your mortgage is up for renewal you’ll see a steep increase. You can learn more about what potential rate hikes mean for your mortgage here.

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Homeownership without a mortgage

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What if there was a way to own and build equity without needing to qualify for a mortgage and be subject to the volatility of interest rates? At Key we’ve made that possible. 

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With Key’s model, you can start owning for as little as 2.5% (around 12k for many of our suites!) and no mortgage. Co-owning enables you to grow equity from day one and live in the suite as your personal residence without ever needing to qualify for or commit to a mortgage.

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After the initial term, you can choose to take on a mortgage and purchase your home the traditional way, but there is no obligation. You can choose to continue co-owning as well and either way you’re building home equity.

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While you’re not taking on a mortgage, co-ownership does give you the opportunity to benefit from leverage through our co-financing benefit. With co-financing, for every $1 you invest, you will also receive another $1 in leverage. Unlike a mortgage, you don't actually have to take on this debt in order to enjoy the benefit of leverage. The only cost to you for this benefit is a small interest charge. Unlike traditional owning where you’re locked in, with co-financing you can choose to opt-in or out at any time. 

With the significant change that’s taken place in the real estate market over this past year, navigating the market as a first-time home buyer can be overwhelming to say the least. If you’re an aspiring first-time homebuyer, research available options and learn more about alternative homeownership models and what it means to co-own your home.

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