Stress test to impact 'move-up' home buyers the most

Stress test to impact 'move-up' home buyers the most

Stress test to impact The newest set of mortgage restrictions announced by the Office of the Superintendent of Financial Institutions (OSFI) will hit home buyers looking to upgrade to new properties the hardest, according to BMO financial group chief economist Doug Porter.

OSFI’s latest rules state that even home buyers who don’t require mortgage insurance because they have a 20% down payment will have to prove they can make meet their commitment if interest rates rise above the five-year benchmark rate published by the Bank of Canada or 2% higher than their contracted mortgage rate, whichever is higher.

Move-up buyers would be disproportionately impacted because they would be most likely to have home equity and qualify for an uninsured mortgage, Porter explained.

The economist noted that last year’s restrictions took 5% to 10% out of the housing market’s buying power, and that OSFI’s latest changes will have a comparable effect.

The guidelines, similar to OSFI’s draft release in July, are scheduled to take effect on January 1, 2018.

“This is potentially more wide ranging and it will dampen the housing market in 2018, probably more significantly than we saw (with) the earlier federal measures,” Porter told the Toronto Star.

However, he emphasized that the changes are “another reason to believe the [Bank of Canada] will hold off on rate hikes this year. Between the uncertainty around NAFTA and between these measures I think the bank will take a bit of a pause at this point.”

And although the Canadian economy is projected to experience some slowdown in 2018, the housing market’s fundamentals remain robust.

“We have strong population growth, we still have relatively low interest and job growth has been robust. Consumers are confident, so it’s not as if this will drive the market down abruptly but it will have a significant dampening impact,” said Porter.

For the past half-decade, the OSFI has been tweaking underwriting standards for home loans amid the introduction of cooling measures in Vancouver and Toronto by both federal and provincial authorities.

“Our mandate is focused on the safety and soundness of the federally regulated financial institutions,” OSFI superintendent Jeremy Rudin said, adding that he might re-evaluate the stress testing as market conditions change.

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OSFI's new mortgage stress test is unnecessary and harmful—think tank
  • 2017-10-19 1:16:19 PM
    i wonder what now happens to the people who have been qualified to purchase homes and condos currently under construction with non refundable deposits or where private mortgages have been utilized for home construction because the banks won't approve the construction but will take over the mortgage when the house is completed?

    these people will be out on the streets and lose considerable deposit and or be sued to complete on the purchase. Have these decision makers even taken any of this into consideration? there is going to be plenty of repercussions due to this short minded decision while OFSI and the Trudeau administration sit in their comfy confines.
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  • ATUL PRAKASH 2018-03-29 11:23:09 AM
    The new Mortgage Lending Rules effective Jan 01, 2018 are very beneficial to the Canadian Economy. Their aim is to prevent the Buyer of the Residential Property from bidding higher than his personal finances permit. However, the Seller lists his property on the premise that the Buyer will come up to the price he "thinks" is the appropriate Market Price. For the past 20 years, The Government of Canada has stood as a silent spectator watching the Residential Housing Price go up like the Jack & The Bean Stalk. They simply did nothing but cheer and considered this aspect as good for the Economy. However, at this juncture,it is difficult if not naïve to think that this run away Seller's Market Price expectations can be reigned in by preventing the Buyer from bidding High. Moreover, the Stress Test is simply taking the Residential Mortgage Market out of the regulated market of the six tier 1 banks and send it to the Unregulated Alternative lenders.
    The basic problem which the Government of Canada does not address is not that people are well off and are capable of paying more for a property but that did - equilibrium in Supply of Built Houses is squeezing the Demand. All the immigrants coming to this country need a house to live in. They come with a wife & kids! How can the Government of Canada not see this simple economics principle!
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