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Starting in April, the government will change the rules that cover mortgage lending in a way that should, in the short term at least, make it easier to qualify for a loan to buy a home.
The Department of Finance says that as of April 6, the so-called “stress test” for mortgages will be calculated in a new way.
The stress test was implemented in January 2018 as a way to let some of the speculation out of the housing market at the time. It does so by making sure borrowers will be able to pay down their debts even if rates move higher. A would-be borrower is tested against his or her ability to pay down the loan at a higher interest rate, and if the borrower fails the test, a lender isn’t allowed to loan them money.
The rules had the effect of cooling the market, especially for first time buyers, which brought down prices in many markets because it shrank the pool of buyers.
ANALYSISAssessing whether 2020 will bring a Canadian property tumble: Don Pittis
At the time it was brought in, the benchmark was set at whatever the five-year posted rate at Canada’s big banks is, which is currently at 5.19 per cent. But under new rules announced on Tuesday and set to be implemented in April, the new bar will be “the weekly median five-year fixed insured mortgage rate from mortgage insurance applications, plus two per cent.”
“This will ensure that people only take on mortgages that are appropriate for the situation, but it does mean the changes in the stress test will be there if the average … rates provided by the banks actually goes down or up,” Finance Minister Bill Morneau said of the changes. “It will actually adjust appropriately to dynamic market conditions.”
The change tinkers with one of the major criticisms of the stress test in the first place, which was that the bar was set arbitrarily high. And non-bank lenders don’t like that the stress test rules give the big banks even more control over the market than they already had. Sherry Cooper, chief economist at Dominion Lending Centres, says the banks would always drag their feet in changing their posted rates, no matter what was happening in the market, “because it’s the rate they use in calculating the penalty for breaking a mortgage,” she said in an interview Tuesday. “This takes the big banks out of it.”
Source: https://www.cbc.ca/news/business/mortgage-stress-test-1.5467330
Are Toronto House Prices Headed Back to 2016 Levels? Concern is growing that Canada’s largest housing market may be about to experience a new round of froth, similar to that seen in 2016.
Back then, red-hot housing markets in the Greater Vancouver and Toronto Areas ultimately forced the federal government to introduce the 2016 and 2018 mortgage stress tests on both insured and uninsured mortgages.
While sales activity and prices took a hit in both markets, the recovery for the Greater Toronto Area seems to be nearly complete. The Toronto Real Estate Board (TREB) reported in January that the MLS Composite Benchmark price was up 8.7% compared to January 2018—the fastest pace of growth since October 2017.
Source: https://www.canadianmortgagetrends.com/2020/02/toronto-house-prices-headed-back-2016-levels/
The ripple effects of the coronavirus are being felt on Canada’s bond market, which is translating into lower mortgage rates. Variable-rate mortgages are generally tied to the Bank of Canada’s overnight benchmark rate. Their fixed-rate counterparts depend on the five-year Government of Canada bond yield, which fluctuates with market forces. It’s fallen sharply since the coronavirus first surfaced.
Source: https://ca.finance.yahoo.com/news/coronavirus-fears-help-push-down-mortgage-rates-204114945.html
The Bank of Canada announced this week that it would leave its mortgage market-influencing key interest rate unchanged again. This development — or lack thereof — did not come as a surprise to economists who pay close attention to the central bank’s moves. It was, after all, the fifteenth straight month that the interest rate did not change.
Source: https://www.livabl.com/2020/01/canadian-interest-rates-may-drop-april-rbc.html
