Photo: James Bombales

Despite a new mortgage stress test and rising interest rates, a new report has found that nearly a quarter of Canadians are planning to buy a home in the next year.

According to a report from BMO, 23 per cent of Canadians surveyed are looking to buy a primary residence in 2018, for an average expected price of $474,000. (That price jumps slightly for buyers in Toronto and Vancouver, to $580,000 and $603,000, respectively.)

That’s despite 73 per cent of respondents indicating that they believe interest rates will go up in the next year. And, though a new mortgage stress test introduced on January 1 could make qualifying for a mortgage more difficult, 53 per cent of respondents said they aren’t planning to stress-test their mortgage.

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“For the first time in years, interest rates are beginning to rise — making it increasingly important for Canadians looking to buy a home to stress-test their mortgage against a higher rate to ensure they can afford it over the long term,” writes BMO head of personal banking Martin Nel, in a statement.

According to BMO senior economist Sal Guatieri, even moderate interest rate hikes can severely erode affordability in high-priced markets. The Bank of Canada hiked the overnight rate to 1.25 per cent in January, and is widely expected to hike it at least once more before the end of the year.

“Given that rates have been historically low for awhile and are not expected to increase dramatically, borrowers may not see the need to stress test,” writes Guatieri, in a statement. “But they should at least plan for a worse-case scenario that involves a material increase in borrowing costs.”

The report found that 69 per cent of respondents preferred a fixed rate, while only 14 per cent wanted a variable one. More than 51 per cent said that their choice would be impacted by the base rates being offered for each.

“It’s encouraging to see that Canadians are thoughtful about weighing their mortgage options based on rate, but it’s equally important that they consider how their choice will affect their day-to-day finances,” writes Nel.

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