On January 1, 2018 new mortgage rules were rolled out by the federal government to reign in the amount people can spend on their home.
The new guidelines, also referred to as a “stress test,” now require federally regulated financial institutions to vet applicants using a minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate (currently 4.99 per cent) or their contractual rate plus two percentage points.
This means home buyers will qualify to borrow 10 to 20 per cent less than they would have before the rule change.
However, credit unions are provincially regulated, meaning they don’t have to follow the same rules.
“They’re going to take over a whole pile of mortgages,” Jon Hanec, mortgage specialist, with Castle Mortgage Group said.
“This is probably going to be the hugest gain in market share for the credit union going forward.”
Currently credit unions hold about 38.7 per cent of Manitoba mortgages.
Ted Richert from Credit Union Central of Manitoba said they’re expecting their shares to see a bump, but aren’t using it as a selling feature.
“If you go to a bank and you’re rejected because of stress test issues and you walk across the street to a credit union we’re still going to ask the same questions and we think we owe our members some responsibility and that includes not overextending them,” Richert said.
He added that credit unions will be reviewing their policies in wake of the stress test. He said people still need to go through a stringent process when applying for mortgages at their institutions.
“It may be true that our market share may increase because of this, but this isn’t our intent to grow our mortgage business just solely on the backs that we don’t stress test,” he said.
The press secretary to Finance Minister Cameron Friesen said the province doesn’t plan on forcing credit unions to follow a stress test.
“The housing market in Manitoba does not face the same risks as other parts of Canada that the federal government has expressed concern about. Our provincial economy is strong,” the provincial spokesperson said.
The Credit Counselling Society said people need to be worried about taking on too much debt and to have a better understanding of what they truly can afford.
“I think anyone who is looking to get a home should keep in mind that interest rates are inevitably going to go up,” credit counselor Frances Lawrence said.
“They want to make sure that they’re not overextending themselves to the point that if those interest rates do go up that they will be challenged in the future to make those payments.”
The Credit Counselling Society offers free budgeting help for people struggling with their finances.