Mortgage stress test means new rules for Battlefords home buyers

By Angela Brown
January 3, 2018 - 2:00pm

Battlefords home buyers may need to plan ahead to ensure they meet the stiffer requirements for purchasing the home they have their eye on as a result of Canada’s new mortgage stress test that went into effect on Jan. 1.  There is also the potential that the new test may have a downward impact on house prices in the near future.

“There will be some impact, but I don’t think it is going to be as great as people are worrying about,” said North Battleford RBC Royal Bank mortgage specialist Dean Dimmick. “The stress test essentially means people are going to be qualifying at a higher rate.”

The recent changes imposed will mean the minimum qualifying rate will be higher for uninsured mortgages – mortgages where the borrower pays at least 20 per cent down-payment.

Home purchasers are now required to meet the minimum qualifying rate for uninsured mortgages to be the greater than the Bank of Canada five-year benchmark rate (now set at 4.89 per cent), or two per cent higher than the contractual mortgage rate.

Dimmick said through the qualification process, the payments are going to be stated higher than what they actually will be, in anticipation if rates do increase in the future, so buyers are better prepared.    

As an example, prior to Jan. 1, buyers may have qualified for a $300,000 home purchase, but now perhaps they may only qualify for a $220,000 purchase instead.

Also as part of the new rules, a federally regulated financial institution is not permitted to try to avoid the stress test increases by making arrangements through another mortgage lender or by preparing a combination package of a mortgage and other lending products.

Superintendent of Financial Institution of Canada's Jeremy Rudin said in a statement the changes will “reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada.”

Dimmick said the stress test involves really more of an adjustment.

"People who are coming with a 20 per cent down-payment, there will be a small impact on them," he said. 

About a year ago home buyers putting less than 20 per cent down payment, they went through a similar new stress test for qualifying. 

Prices might decrease

Dimmick couldn't say whether there will be any impact on home prices in the future as a result of the new stress test, but said perhaps some home prices may come down a bit as a result.

"It's not necessarily something we want to see," he said. "It's all somewhat relative as things go on, but it definitely has the potential for us to see that. Hopefully, it's not too drastic. If house prices drop less than where someone maybe has purchased it within the last five years, [then] chances they are not selling their home when real estate slows in transactions. That’s never good for an economy.”

Dimmick said with these changes it’s going to affect a very small percentage of the market.

"I don’t think there is going to be as great an impact that people are foreseeing," he said.  

Alberta Mak, chair of the Council of Battlefords Realtors, and broker/owner with Action Realty ASM LTD, offered some advice to prospective new home buyers.

"Go in and get re-qualified so you know exactly what you are qualified for before you go house shopping," she said.   

 

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