The Liberal majority win was a surprise for many. The effects of this win will reach far, especially in terms of the financial impacts for both Canadian families and businesses. The Liberals have promised to lower the tax rates for small businesses and get rid of the income splitting program that the Conservatives created, among other things. But could the changes that the Liberals are planning to implement affect mortgage rates? I’m going to explain that here.
The short answer is that mortgage rates could rise if more bonds will be issued by the government to pay for the increase in infrastructure expenditure that the Liberals have planned to make.
The Liberal government has stated that they will increase how much the government spends on infrastructure in the coming years by significant amounts, which will be the cause of deficits in the budget for three years. Their main areas of spending will be in green, social, and public transit infrastructure. We could expect a deficit each year of $10 billion at the most in each budget. Trudeau’s government has also made a commitment to spend $5 billion more than previously in other infrastructure for the fiscal years of 2016 to 2017 and 2017 to 2018.
TD Economics has noted that we have not yet received exact information on when this planned spending will occur and what specific projects will be completed. If the infrastructure spending occurs as planned, the Canadian economy will receive a boost that it needs. The promise to increase government spending means that the Bank of Canada will have less pressure placed on it to stimulate the economy. This means that interest rates will not have to be lowered any more than they already have been.
However, mortgage rates could become moderately elevated. This could happen as investors begin to realize that the government will be issuing more bonds, which will lead to an increase in bond yields of five to ten years. Mortgage rates could as a result remain stable or become moderately higher in the next year.
It’s important to note, though, that the effect of increased bond yields on mortgage rates is not a sure thing. While it’s a good idea to know what can cause mortgage rates to change in Canada, it’s even more important to get working with a mortgage broker who will look out for your needs. Contact Rakhi Madan if you’re in the Brampton, Toronto, or GTA area.
