Canada’s new mortgage stress test rules will make home buying a little more difficult for first-time buyers, according to several mortgage and housing policy experts.
The new rules, due to go into effect June 1, increase the minimum qualification rate, which is a measure of whether borrowers can process payments when interest rates rise.
According to the office of the Superintendent of Financial Institutions (OSFI), which confirmed the upcoming changes Thursday, rates would either rise to the contractually agreed rate plus two percentage points or to 5.25 percent, whichever is higher.
Several mortgage and housing policy experts told Global News that the surge would make it difficult for some to qualify for a mortgage in the short term.
Vancouver-based mortgage broker Alex McFadyen said first-time buyers in particular are likely to be most affected by the new rules, as they are unlikely to have as much equity as those who have already bought a home and that most of them would get insured mortgages take up.
Such insured mortgages are loans that pay less than 20 percent of the property’s down payment, but that have more rules, regulations, and guidelines in place.
“There will be effects. As we said earlier, this is not a dramatic impact, ”McFayden said in an interview with Global News on Saturday.
Millennials priced out of home ownership
According to him, the changes are unlikely to have the same impact on the market as the last time the stress test was changed.
The 2018 stress test change reduced credit strength by 22 percent, while this year’s change would only reduce credit strength by about four to five percent, he said.
Several other experts said that while groups like first-time buyers would have some impact, the changes would be marginally noticeable in the Canadian real estate market as a whole.
“Minor changes to the stress test rules have little effect. Yes, first-time buyers on the edge are easily injured, ”David Hulchanski, professor of urban planning at the University of Toronto, wrote in an email.
Canada’s banking regulator is weighing tighter mortgage regulations amid the hot real estate market
Hulchanski said real estate associations and builders would also be affected as homes that aren’t sold or built would reduce profits for them, even though major players in the Canadian real estate market, such as several property owners, wouldn’t because of “enormous incomes – and the asset gap ”will be affected at all.
“So the June 1st changes will only affect a small number of potential first-time buyers and those who are playing in the market who are not very rich,” he wrote.
University of Toronto Geography and Planning Professor Dr. Alan Walks also agreed that the changes were likely to have an impact on the housing market, albeit a minor one.
“I think one of the banks has estimated that the changes will reduce purchasing power by about four or five percent, which is not huge in itself,” Walks said in an email on Saturday.
However, it remains to be seen whether an influx of potential home buyers will seek to complete their purchases before June 1.
The Bank of Canada warns Canadians to be “careful” when assuming household debt
According to Walks, the short span between now and June 1 would allow few home buyers to make purchases this week.
On the flip side, McFadyen said that if homebuyers complete their purchases before the June date, we’re more likely to see “a sprint to the finish line here” in the next seven to ten days.
What he says is another serious problem of change that is simply a lack of communication and clarification by the government.
“We see a lot of people asking questions, there is a lot of confusion in the market, so I find a lot of wrong information because the information is always changing,” said McFadyen.
“You know, I think it’s one of those situations where the government, or whoever is involved in these decisions, should communicate much more clearly – people actually aren’t able to do that [make] A change seven days before it came into effect without much clarity. “
© 2021 Global News, a division of Corus Entertainment Inc.