Sunday’s 20-basis-point bump-up in the qualifying rate won’t likely win the Bank of Canada a slowdown in the housing market, say brokers, pointing to an all-but-complete shift away from variable rates and toward the five-year fixed.
“I don’t see it putting the brakes on the current sales environment at all,” Darin Bauer, with Mortgage Intelligence in Toronto, told MortgageBrokerNews.ca. “ It’s going to take a good half a per cent climb in the qualifying rate and for the five-year to rise to 3.70 per cent or 3.80 per cent for homebuying to be affected.”
The analysis may not jive with the Central Bank’s rather hopeful thinking. It moved Sunday to increase that qualifying rate to 5.44 per cent, up 20 bps, and not the 50 or more Bauer and others argue is needed to slow down homebuyers.
The new standard means a high-ratio borrower must now be able to cover a variable-rate mortgage at 5.44 per cent or a fixed one with a term anywhere from one to four years.
While last month’s rate wars greatly increased the appeal of the the four-year fixed mortgage, most borrowers have once again returned to the longer-term product.
“The rate increase doesn’t mean much because borrowers are largely focused on fixed mortgages and the rates on a five-year fixed are so low that they’re going there and they’re not affected by the new qualifying rate,” said Invis mortgage agent Brad Compton. “I don’t see the new qualifying rate having much affect.”
That ultimately may work against mortgage professionals if the BoC or the government feels the need to reach for a stronger tool to slow the growth in household debt, now near historic levels.
Analysts are suggesting the Central Bank will move as early as June to increase its benchmark rate, while Finance Minister Jim Flaherty says the federal government is prepared to tighten mortgage insurance rules if consumer spending continues to rise.