VANCOUVER ISLAND, B.C. – The most recent interest rate hike from the Bank of Canada will add to the challenge of buying and selling homes, according to the Canadian Real Estate Association.

The BoC raised its interest rate by a quarter percent on Wednesday, to bring its benchmark rate to 1.75 per cent, the highest in a decade.

And as of Oct. 24, the benchmark five-year lending rate was still 5.34 percent, although it may move higher.

According to the association, this is half a percent above where it stood a year ago and 0.7 percent above where it was from mid-2015 through mid-2017.

As of Jan. 1 of this year, all mortgage applicants must qualify for financing based on an interest rate no less than the benchmark five-year lending rate, as published on a weekly basis by the BoC.

This puts more pressure on the Vancouver Island market, which saw sales slump last month. Sales of single-family homes across the island in September dropped by 32 per cent from one year ago, and 25 per cent from August 2018.

Vancouver Island Real Estate Board president Don McClintock said rate changes always affect the markets.

“We never know exactly how much,” he said. “Whenever rates go up as they have here, a quarter of a percentage point, it erodes the buying power of anybody who is getting a mortgage.”

The simple reason behind that is buyers have to pay more interest than before.

“It lowers the price that they can afford to pay for a house,” McClintock said.

The average price for a single family detached house on Vancouver Island was $508,800 in September, a 12 per cent increase from one year ago.

“That’s a fair amount of money that anybody is going to have to pay for a house,” McClintock said.

The financial stress test on buyers puts added pressure on the market.

McClintock said the stress test has “probably impacted the market more than the quarter of a percentage point increase like we’ve had this past week.”

The stress test elevates the mortgage about two percent above what any borrowers would realistically be able to get.

“In other words, if they are able to get a mortgage right now for three-and-half percent, then the stress test is going to require them to qualify at about five-and-a-half percent, which is above the posted bank rates,” McClintock explained.

He said this impacts people “very significantly” in terms of their qualifications.

“They might be able to afford to buy a $600,000 home but because of the stress test, they can only qualify for a $500,000 or a $475,000 home,” McClintock said.

He advises buyers to use a qualified mortgage broker, who will shop each individual portfolio around to find the very best rate.