“The impact of the new stress test requirement will be to lower the purchasing power of households by up to 20 percent".
So said, Cameron Muir, Chief Economist for the BCREA. The stress test he's referring to isn't the one already in place, applying to insured mortgages where people have put down less than a 20%. Rather, it's a NEW requirement for insured AND uninsured (conventional) mortgages that will require home buyers to qualify for their mortgage at a higher rate.
As for what that 'higher rate' is specifically, the minimum qualifying rate for uninsured mortgages will now be the greater of the Bank of Canada’s five-year benchmark rate or the contractual mortgage rate plus 2%. So if you were looking to lock in your mortgage rate at 3%, come January 1st you will actually need to qualify at 5%, meaning that you will need to make about 20% more income to borrow the same amount of money.
It should be noted that the new stress test will NOT apply to people renewing their uninsured mortgage.
Nonetheless, RateSpy founder Rob Lister called the move "the most ground-shaking mortgage rule change of all time. That’s not hyperbole.”
Others have had a more measured response. The Financial Post quoted CIBC Capital Markets analyst Rob Sedran suggesting that the banks generally support an “engineered slowdown” of the housing market, as opposed to an unforeseen downturn.
“Our only remaining concern is the risk that all these changes will act in concert to create a more pronounced slowdown than any one regulatory body intended".
Other changes also taking effect include the OSFI requiring lenders to increase their loan-to-value (LTV) limits and restrict lending arrangements that have been designed to circumvent LTV caps. These amendments will apply to all federally regulated financial institutions.
The news marks the seventh time since 2008 that the federal government has altered their mortgage policies.
If you have any questions about these changes, or how they may affect you or the real estate market, get in touch and I'll do my best to provide answers and / or put you in touch with one of the experts I work with.
You can find the full press-release here.