On June 1st, the Office of the Superintendent of Financial Institutions (OSFI) updated the rules around what is commonly referred to as the Mortgage Stress Test. The stress test was originally enacted to ensure that buyers would be protected against future rate hikes, essentially forcing them to qualify at a rate over and above the current posted rate.
With the rule changes, the minimum qualifying rate for uninsured mortgages will be the greater of (i) the mortgage contract rate plus 2 percent or (ii) 5.25 percent. Moving forward, OSFI will review and communicate the qualifying rate at least once a year, starting in December.
Long-term, the intent by OSFI is to cool down the market by putting some downward pressure on prices, since they’ve increased significantly nationwide over the past year. From what I’ve read, it appears affordability will be reduced by between 2 and 4 percent.
So, will this reduction in affordability scare off buyers? I don’t see it happening. Certainly, these changes will have a greater impact on first-time buyers, and that is extremely unfortunate. But, there is a lot of demand, at this point in time, that’s coming from local buyers.
You’ll recall that in 2016 and the early part of 2017, there was significant concern about buyers from outside the country acquiring Canadian real estate and driving up prices. Well, for the past 15 months, it’s been all local buyers. We’ve seen that Canadians buying within Canada are more than enough to put prices and unit sales higher than ever before, all without assistance from foreign markets. So, when COVID rates recede and the immigration doors reopen, expect demand to increase even higher.
If you’re looking to buy a home, my advice would be: speak with your mortgage broker; organize your finances so you’re ready when opportunity knocks; avoid short closing dates, as appraisers are completely swamped; and hire a trusted Realtor who understands your budget and keeps you on track to own a home that you can afford.