Will New Stress Test Rules Stress You Out?

October 21, 2017

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The Office of the Superintendent of Financial Institutions (OFSI) recently announced another set of mortgage restrictions, known as B-20, that may hit home buyers looking to upgrade to new properties the hardest. Effective January 1, 2018 the ‘stress test’ net widens to include conventional or low-ratio mortgages – – even home buyers who don’t require mortgage insurance because they have a 20% down payment will have to prove they can make meet their commitment if interest rates rise above the five-year benchmark rate published by the Bank of Canada or 2% higher than their contracted mortgage rate, whichever is higher.

Move-up buyers generally would be the ones most likely to have built up home equity and qualify for an uninsured mortgage. Restrictions made last year for high-ratio mortgages effectively reduced home buyer purchasing power by 15-20% and depressed market demand by 5-10%. Mortgage analysts and economists are noting that this new change is expected to have a comparable effect.  A survey by industry group Mortgage Professionals Canada showed the requirement would disqualify about one in five potential home buyers.

Uninsured mortgages account for 46 per cent of the country’s total $1.5 trillion mortgage credit outstanding, according to Bank of Canada data. That’s up from 45 per cent a year earlier. OSFI has been tightening underwriting standards for home loans in the past five years as federal and provincial governments have also introduced market-cooling measures in Vancouver and Toronto.