Will the Bank of Canada’s new interest rate cut help GTA renters?

Canada’s newest interest rate cut could be the edge that struggling renters in the GTA  have been looking for, one expert says.

Yesterday, the Bank of Canada cut its key interest rate to 2.5 per cent, marking the first shift in this metric since March.

Signalling a three-year low, this maneuver by the BoC is being analyzed by many as a remedy to manage the growing debt and living costs that numerous Canadians have been struggling with over the last few years.

A key casualty in the current economic climate is the Canadian renter, as the pendulum of stagnant wages and high rent continues to impact those managing living expenses — especially in regions like the GTA.

For organizations like SingleKey, a platform that manages renter qualifications for landlords, keeping an ongoing ledger of the struggles renters face has been crucial.

With the goal post for landlord approval moving further away amid cost-of-living struggles, applications like SingleKey, which monitor credit, income, and renter history, have had to change their internal mechanisms to give renters whatever leg up they can get.

“To be able to approve renters for our program, we used to have a 45 per cent rent-to-income ratio as a requirement for affordability. We have actually had to bump that to 50 per cent because we were declining far too many applicants, so that gives you a good sense of the affordability crisis we have been encountering in the market,” Viler Lika, CEO of SingleKey, told INsauga.com.

According to SingleKey, Ontario has one of the highest average rent costs nationwide, roughly $2,300 per month, and an average rent-to-income ratio of nearly 40 per cent. However, in major cities like Toronto, the average is just under $3,000, resulting in paycheques being devoured faster than anywhere in the province.

As a result, those living in major municipalities like Toronto, Mississauga, Brampton, and Hamilton are forced to struggle not only to make ends meet for housing but also to manage the mounting debt saddled by most Canadians.

“Canadians are some of the most indebted borrowers across the entire world, so as a result, debt payments take on a substantial part of monthly income,” says Lika.

Scanning the GTA housing market, Lika hopes that a natural casualty will begin to emerge, as with key interest rates at an all-time low, renters squeezed between low wages and high rent can potentially manage debts.

“It does help promote affordability for both landlords and tenants, as renters get a chance to pay less interest, whether this is on credit cards, student loans, or car payments, and for the landlord, there is, in turn, less pressure to increase rent to cover their mortgage payments,” says Lika.

However, Lika noted that a cut to interest is not a cure-all for hardships, as many continue to be forced to choose between being late on a credit card payment or paying for a roof over their head — and for the first time in a while, Canadians are opting for the latter.

“How many payments are there that don’t go through that are basically [non-sufficient funds]? Historically, we have seen a steady rate of about four per cent, but recently, between July and August, it rose to five per cent. As a result, we have now seen an overall 20 per cent increase in delinquency payments,” says Lika.

With 20 per cent of surveyed Canadians missing rent, the question remains as to what good a 2.5 per cent interest rate cut will do, when the margins are this desperate.

SingleKey’s numbers show that the annual average income in cities like Toronto is close to $150,000, a number that, on paper, should support the current rental average of $3,000 a month.

However, according to the City of Toronto’s 2021 census, there were 457,525 people between 24 and 35 years old calling the city home, and based on a recent report by ZipRecruiter — a job posting platform — the average income for a person between 24 and 34 years of age is just a little over $50,000.

By that metric, Toronto’s population, which is just a little over 2 million, has a quarter of the population having most of their paycheques inhaled by rent.

As for what the future will likely look like against this standard, Lika indicates that his organization will monitor the situation and do what it can for the average Canadian renter.

“We’re curious to see where it’s all going to lead. We are in an advantageous position, managing thousands of clients across the country,  we can play with the numbers a bit and increase affordability criteria and increase approval rates.”

However, it will take some time until we see how the average renter will be impacted by this shift in interest, with Lika stating, “This starts the process of getting to a higher level and looking at the ‘macro picture,’ and potentially, the next conversation around this will have more data that we can assess from this change, how things were looking pre to post cut.”