Stress test gets more stressful on June 1
May 3, 2021
As of June 1, 2021, homebuyers applying for an uninsured mortgage—those with more than a 20 per cent down payment—will need to qualify as if their mortgage rate was 5.25 per cent, or two per cent higher than their actual contract rate.
Currently, Canada’s mortgage stress test has a minimum qualifying rate of 4.79 per cent—nearly 50 basis points lower.
The Office of the Superintendent of Financial Institutions (OSFI) also said it plans to “revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment.”
OSFI Superintendent Jeremy Rudin told reporters that the change was necessary to ready the market for the end of the pandemic.
“The main thing we have to be ready for is an increase in mortgage rates to the pre-pandemic range,” Rudin told reporters. “We have interest rates that are extraordinarily low, even by recent standards.”
He warned lenders “OSFI will be looking for heightened vigilance in applying to income verification and debt servicing, combined mortgage-HELOC loan plans and risk governance.”
In other words, mortgage qualifications could get much harder for those with high home equity loans, disruptive income and related debt. Due to COVID-19, many Canadians may fail to meet the tougher standards.
“Increasing the qualifying rate by another almost 50 basis points will only serve to disqualify more aspiring middle-class Canadians and would-be first-time buyers,” Paul Taylor, president and CEO of Mortgage Professionals Canada told Canadian Mortgage Trends.
It’s estimated that this proposal would reduce purchasing power for uninsured borrowers by between 4 per cent and 4.5 per cent.