mortgage stress test

Just when you thought it was safe …

The Office of the Superintendent of Financial Institutions (OSFI) is at it again! They have proposed new mortgage lending guidelines. This time around the changes includes a stress test for uninsured mortgages. This, is in addition to the existing stress test on insured mortgages introduced in the fall of 2016.

The federal government and OSFI have been taking steps since last year to cool the housing market. Their attempt to reign in risks taken on by lenders as house prices in certain markets have soared. Most of the recent efforts have focused on the insured segment – those with less than 20% down – of the market largely backed by government guarantees.

When the changes were announced in July, we quickly saw home sales and prices come down, but it may have been short-lived — some areas of the country have rebounded just as quickly.

The consultation period ended August 17. Although nothing has been announced as of this writing, it’s likely the proposed changes will be implemented in some form or another soon. This includes a measure whereby homebuyers will have to show they can afford a 2% increase on the interest rate they are approved for. This would apply to variable and fixed-rate mortgages, regardless of term.

Let’s look at this from a buyers’ point of view. Say you were purchasing a home for $500,000. You have 20% down payment and your interest rate is 3.00%. Your monthly payments would be $1,893. According to the new rules though, you would have to qualify as though your monthly payments were $2,290 — a difference of $397 per month.

These changes could lead buyers to:

  1. Come up with a bigger down payment
  2. Opt for a lower priced home
  3. Scale back other debt
  4. Delay purchasing a home.

Some economists are estimating that these new rules could depress demand by 5% to 10% and shave 2% to 4% off of the current forecast for the average price level in 2018.

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