Changes to the Mortgage Stress Test

Changes to the Mortgage Stress Test: What does this mean for the housing market? 

 

Canada’s banking regulator has proposed an increase to the qualifying “stress test”, otherwise known as the B-20 Guideline, applied to uninsured mortgages. 

Beginning June 1, loan applicants will need to prove they can afford an interest rate of 5.25% before getting approved for funding. The intended result is to preserve Canada’s economic stability by slowing down the housing market and stabilizing home prices over time.

To qualify for the current stress rate of 4.79%, borrowers must submit their applications before June 1st. All applications submitted after the deadline will be assessed by the increased rate of 5.25%

How does this impact buyers?

This change will make it more difficult for first-time homebuyers to qualify for a mortgage as the new rate will reduce buyers’ purchasing power by roughly 5%. While we can expect to see a short-term spike in the housing market as last-minute buyers rush to secure the current rate, the new rate should help to cool down the red-hot market in the long run.

If you are unable to qualify for a mortgage with new stress-test rate, you may want to explore other options such as alternative lenders, saving for a larger down payment, or reducing your house hunting price range.

How does this impact sellers?

By lowering the purchasing power of home buyers, these measures are expected to reduce competition and influence home prices in the current seller’s market. 

If you’re considering buying or selling in 2021, get in touch with the experts at The Michelle Fraser Team to determine your next move.  

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