Effective January 1, 2018, home buyers who don’t require mortgage insurance — those with a down payment of 20 per cent or more — must qualify for their mortgage at a higher rate.
This new stress test doesn’t apply to people renewing their uninsured mortgage.
Canada’s Office of the Superintendent of Financial Institutions (OSFI) announced these rule changes on October 17. Draft changes were released in the summer for public feedback.
Under the new rules, the minimum qualifying rate for uninsured mortgages will be the greater of the Bank of Canada’s five-year benchmark rate or the contractual mortgage rate plus two per cent.
OSFI will also require lenders to enhance their loan-to-value (LTV) limits and restrict certain lending arrangements designed to circumvent LTV limits.
These changes apply to all federally regulated financial institutions.
This is the seventh time since 2008 that the federal government has made mortgage policy changes.
Cameron Muir, BC Real Estate Association chief economist believes this will have a significant impact on the real estate market:
The impact of the new stress test requirement will be to lower the purchasing power of households by up to 20 per cent. Like past tightening of mortgage regulations, we anticipate that the market impact will be sharp but temporary. In the past, we’ve seen home sales decline in the three to nine months following the implementation of tighter mortgage lending standards, with the severity of the impact fading within one year. However, these new regulations impact a larger pool of mortgages and so the impact could be more significant than in the past.