The new B-20 mortgage stress test amendment, which either raises qualification from 4.79% to 5.25% or applies 200 basis points—whichever is higher—takes effect today, but borrowers shouldn’t fret too much.
The simplest way to get around the stress test is to go to an alternative mortgage lender because amortizations are longer in order to stretch borrowers’ every dollar, says Matrix Mortgage Global’s COO Laura Martin.
“An important point to make here is that, while there is a small segment of borrowers whom this would impact, borrowers can still qualify with alternative lenders that allow for higher debt service ratios and longer amortization periods to stretch their income dollars,” Martin told CREW. “The effects on the market will be a drop in the bucket compared to the overwhelming demand by eager first-time buyers and upgraders fighting for a scarce amount of supply for detached and townhomes with more space. The lack of construction for new homes has in large part caused this inordinate lack of supply, however, the price growth in secondary markets will encourage larger amounts of new housing construction. This, ultimately, could reduce the price pressures.”
In Canada’s most expensive markets, namely Vancouver, Toronto and Ottawa, the stress test should have minimal impact on borrowers’ abilities to secure mortgages. Using a $600,000 mortgage at 4.79% on a 25-year amortization, a borrower with $10,000 of debt would need to show an income of $120,500, but at 5.25% they would have to show $125,000 in income. In the rest of the country, it’s even more manageable.
“The increase in OSFI’s [Office of the Superintendent of Financial Institutions] stress test from 4.79% to 5.25% is a margin of only 46 basis points compared to the initial 2017 introduction of the stress test that required an additional 200 basis points to qualify—which will only have a marginal impact on borrower affordability or market cooling,” said Martin.
Another way around the stress test is by adding cosigners, however, Martin noted that alternative lenders require minimum down payments of 20%, although she says the majority of purchasers often plan ahead in order to void insurance premiums with the Canada Mortgage and Housing Corporation or Sagen (formerly Genworth). Still, Martin expects that first-time homebuyers will feel the short shrift more than anybody else.
“The real challenges for first-time buyers will be saving for down payment amounts of $100,000 amid their massive student and consumer debts, or paying off large mortgages with other economic pressures like inflation. In terms of cautionary measures to cool the market, this will almost certainly be too little, too late.”
According to mortgage broker Leah Zlatkin, buyers who were preapproved before June 1 but did not receive a mortgage commitment from their lender in time—likely a consequence of how many borrowers were trying to beat the June 1 deadline—their mortgage amount could be 5% less and that could affect the home purchase. Moreover, it’s not yet clear if all lenders will treat the situation uniformly.
“Usually consumers look at the lowest rate first,” said Zlatkin, principal broker at Brite Mortgage and a LowestRates.ca expert, “but buyers who are worried about the amount of mortgage dollars they will have access to should consider a slightly higher rate for a guaranteed quick turnaround on commitment.”