Earlier today, Minister of Finance Bill Morneau announced changes to the mortgage stress test.
The new benchmark rate used to determine the minimum qualifying rate for insured mortgages, coming into effect on April 6, 2020, will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2 per cent.
Recently, the gap between the Bank of Canada’s five-year benchmark rate and borrowers’ actual contract rates has been widening, suggesting the benchmark rate has become less responsive to changes in the market.
In October 2016, Finance Canada introduced a stress test for insured mortgages. In 2017, the Office of the Superintendent of Financial Institutions (OSFI) issued an update to Guideline B-20, requiring uninsured mortgages to be stress-tested as of January 2018. CREA data indicates that per capita sales activity for residential units in 2018 reached its lowest point since 2001, with 2019’s final sales total tied for second-worst.
“REALTORS® have advocated for changes to the stress test on behalf of potential homeowners who have been sidelined, borrowers who have moved away from the regulated market to less-regulated options, and real estate markets across the country in need of relief,” said Jason Stephen, President of The Canadian Real Estate Association. “We are pleased the government has taken steps to address some of these issues in Canadian housing markets.”
In response to the impacts of the stress test, CREA has recommended:
- reviewing the mortgage stress test to ensure the realities of local real estate markets are taken into consideration; and
- allowing existing mortgage holders to be exempted from the stress test at the time of renewal.
CREA welcomes today’s announcement and acknowledges government’s efforts to help Canadians achieve their housing needs through policy reflective of market conditions.
CREA CEO Michael Bourque said “Today’s announcement introduces a more dynamic measure to act as a minimum qualifying rate. The Bank of Canada’s weekly median 5-year fixed insured mortgage rate plus 200 basis points will be more responsive.”
CREA will be providing input as OSFI considers the same benchmark rate for uninsured mortgages and will continue advocating for policy solutions that make it easier for Canadians to find a home that is right for them.