New mortgage stress test rules will make it harder for first-time homebuyers: experts

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New mortgage stress test designed to cool home market
WATCH ABOVE: New mortgage stress test designed to cool home market – May 21, 2021

Canada’s new mortgage stress test rules are going to make purchasing homes a bit harder for first-time homebuyers, according to several mortgage and housing policy experts.

The new rules, which are set to come into effect June 1, ups the minimum qualifying rate, which is a gauge of whether borrowers can handle payments should interest rates increase.

According to the Office of the Superintendent of Financial Institutions (OSFI), which confirmed the upcoming changes on Thursday, the rates would rise to either the contracted rate plus two percentage points or 5.25 per cent — whichever is higher of the two.

Several mortgage and housing policy experts have told Global News that the rise would make it more difficult for some to qualify for a mortgage in the short-term.

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Vancouver-based mortgage broker Alex McFadyen said that first-time homebuyers in particular are likely going to be impacted the most from the new rules because they’re likely to not have as much equity as those who’ve already purchased a home and that a majority of them would be taking insured mortgages.

Such insured mortgages are loans that have less than 20 per cent of the property’s down payment paid, but come riddled with more rules, regulations and guidelines.

“There is going to be an impact. It’s not, as we talked about, a dramatic impact,” said McFayden in an interview with Global News on Saturday.

Click to play video: 'Millennials priced out of home ownership'
Millennials priced out of home ownership

According to him, the changes are not likely to impact the market in the same way as when the stress test last changed.

The 2018 stress test change reduced borrowing power by 22 per cent while this year’s change would reduce borrowing power by only about four to five per cent, he said.

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Several other experts said that while there would be some impact on groups like first-time homebuyers, the changes would be very slightly felt as a whole across the Canadian housing market.

“Subtle changes in the stress test rules have little impact. Yes, first-time buyers on the margins get hurt slightly,” wrote University of Toronto urban planning professor David Hulchanski in an email.

Hulchanski said that real estate associations and home builders would also be impacted, as houses that aren’t sold or built would decrease profits for them, though the major players in the Canadian housing market, such as multiple property owners, aren’t going to be affected at all due to the “huge income and wealth gap.”

“So the changes on June 1 will only affect a small number of potential first-time buyers and those playing the market who are not very wealthy,” he wrote.

University of Toronto geography and planning professor Dr. Alan Walks also agreed that the changes would likely have an effect, albeit small, on the housing market.

“I think one of the banks estimated the changes will reduce purchasing power by something like four or five per cent, so not huge on its own,” said Walks in an email Saturday.

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Whether or not an influx of potential homebuyers will be scrambling to finalize their purchases ahead of June 1 is still up in the air, however.

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Bank of Canada warns Canadians need to be ‘prudent’ when taking on household debt

According to Walks, the short time span between now and June 1 would allow just a few homebuyers to squeeze in purchases this week.

On the other hand, McFadyen said that we’re more likely to see “a sprint to the finish line here in the next seven to 10 days” of homebuyers finalizing their purchases before the June date.

What he says is another serious issue about the change is just a plain lack of communication and clarification from the government.

“We are seeing a lot of people asking questions, there’s a lot of confusion in the marketplace, so I find a lot of false information because the information keeps changing,” McFadyen said.

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“You know, again, I think it’s one of those situations where clearly the government or whoever is involved in making these decisions should be communicating much more clearly — people are not actually in a position to [make] a change seven days before it goes into effect without a lot of clarity.”

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