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Mortgage stress test rules get more lenient for first time since B-20 intro

22 July 2019
Sutton Showplace Realty Chilliwack

For the first time since the government implemented new stress test rules on Canadian home loans, the bar has been lowered — meaning a would-be home buyer could be approved for a bigger mortgage today than they would have yesterday.

The so-called stress test, formally in place since January 2018, is a financial bar that any Canadian looking to take out a mortgage must pass to be approved for one. Regardless of what deals they may have been offered by a lender in the real world, for regulators to sign off on the loan, the borrower's finances must be tested as though their mortgage rate is at a higher level. The idea is to save borrowers from biting off more debt than they can chew and ensure they have some financial wiggle room if rates rise.

The stress-test level is set at either two percentage points above the actual mortgage rate or whatever the average five-year posted rate is at Canada's big banks, as calculated by the Bank of Canada — whichever is higher.

That bank rate hasn't changed since May 2018, when it rose to 5.34 per cent. But this week, it inched down to 5.19 per cent, the first time it has decreased in almost three years.

Read the remainder of the article here: https://www.cbc.ca/news/business/mortgages-stress-test-rate-1.5217790?fbclid=IwAR1g7QxS0_fbc1Di8uApI2svDCLrPheC25Xeli9N2PpOXwOPNGA2JyxXaUY


New Mortgage Rules are impacting B.C. families' abilities to purchase homes.

18 March 2019
Sutton Showplace Realty Chilliwack

B.C. real estate board urges feds to revisit mortgage stress test

Stress test reducing people’s purchasing power by as much as 20 per cent, BCREA says...

B.C.’s real estate board is joining the chorus of voices across the country urging the federal government to revisit the year-old stress test rule that has been criticized for eroding housing affordability for many.

The B-20 stress test was implemented in January 2018 to help cool down the red-hot housing market in Canada’s major cities. Would-be homebuyers now have to qualify at an interest rate two percentage points above the rate they negotiate with the bank.

The BC Real Estate Association says the test is reducing people’s purchasing power by as much as 20 per cent.

“We would like to see a review and reconsideration of the current mortgage underwriting ‘stress test,’ as well as a return to 30-year amortizations for federally insured mortgages,” chief executive officer Darlene Hyde said in a news release Tuesday.

“These rules must be changed now before B.C. families are left further behind.”

The association has pointed to the stress test as the leading reason behind dipping home sales since last summer. Sales have dropped 45 per cent in Vancouver since 2018, compared to 18 per cent nationally.

The average price of homes in the Lower Mainland nearly doubled, while it remained mostly steady across the province, up just 0.5 per cent to $716,100, in the first quarter of 2019.

Housing analysts predicted in late December that prices in the Lower Mainland will rise by just 0.6 per cent this year, compared to five per cent in 2018. If true, a home will cost an average of $1.3 million by the end of the year.

Hyde said the test is having a negative impact on other facets of the economy, such as retail spending, as home equity declines in line with decreasing benchmark prices.

The Canadian Home Builders’ Association has also said the mortgage rules may force builders to pull back, leading to slower growth of the housing stock and yet another supply crunch and higher prices down the road.


Article from The Progress: https://www.theprogress.com/news/b-c-real-estate-board-urges-feds-to-revisit-mortgage-stress-test/?fbclid=IwAR23SZe11mB1Y2I1N9SqdsjuPP-_KPnEM-aGnieyZpR_1c0VcVttFaXYng8


Mortgage Stress Test

14 April 2018
Sutton Showplace Realty Chilliwack

--Article sourced from Global News

The latest set of federal mortgage rules has been blowing a cool wind over almost every Canadian real estate market. With the exception of Ottawa, Montreal and a few others, home prices have slowed down or dipped, sometimes upsetting the calculations of homeowners counting on windfall sales. The average price of a home in Canada stands at $491,000, down 10 per cent from March of last year, according to the Canadian Real Estate Association (CREA).

But that isn’t making much of a difference for many home buyers. On the one hand, if you take out Toronto and Vancouver, the national average home price slipped just 2 per cent in the last 12 months — not enough to make up for the fact that, under the new stress test, prospective buyers now have to show they’d be able to keep up with their bills even if their mortgage rate rose by two percentage points.

On the other hand, in Canada’s two most expensive markets, the stricter mortgage rules are pushing many buyers toward less pricey condo and town homes, which is in turn driving up the price of those properties. Condo prices are up 26 per cent and 14 per cent since last March in Vancouver and Toronto respectively.

So how much does one need to make these days to qualify for a loan to buy an average-priced home in some of Canada’s largest cities?

We looked at the numbers using the mortgage affordability calculator of rate-comparison site RateHub.ca. Here’s what we got:

In Toronto and Vancouver, you need well north of a six-figure salary to buy a middle-of-the-road property, which in both cities is likely to mean a condo or a townhouse — if you’re lucky.

The picture isn’t so bad in most of the rest of Canada, where an average income is enough to buy an average home (the country’s median household income stands at $76,000, according to the latest Census data).

Our calculations also include a downpayment of 20 per cent, an amount of cash that may be out of reach for many, especially first-time homebuyers. We also based our math on a 5-year fixed mortgage rate of 2.99 per cent, which is among the lowest in the country but not necessarily available everywhere.

Still, perhaps most importantly, we assumed buyers had no other debts. This is a big “if” as “54 per cent of Canadians have non-mortgage debt, which makes it even harder to qualify,” said Robert McLister, founder of rate-comparisons site RateSpy.com and mortgage planner at intelliMortgage.com

Things like credit card payments and car loans also factor into the stress test, with lenders looking at total debts taking up no more than 42 per cent of your annual pre-tax income.

“Every $450 of monthly [debt] obligations reduces the mortgage you can qualify for by [about] $100,000,” according to Bryan Freeman, senior vice president and mortgage agent at CanWise Financial, a brokerage associated with RateHub.

There are a host of other factors that might push buyers over the edge, Freeman said. For example, if you rely on freelance income that varies from year to year or on commissions, bonuses or overtime, what goes into the calculation is your two-year average pay.

“If you’ve just started [on the job], the bank will only look at your base income,” Freeman said.

Then there are property taxes, which are part of the housing costs that shouldn’t take up more than 30-32 per cent of your gross monthly pay.

The property tax rate can vary significantly from region to region and “is definitely a consideration,” Freeman noted.

Still, there are ways in which today’s house-hunters can stretch their affordability, McLister said.

One of them is turning to credit unions, which are regulated provincially and not subject to the latest federal mortgage rules.

“The income required is roughly 12-13 per cent lower for borrowers who use a credit union that qualifies them at the 5-year fixed contract rate,” McLister said.

Another possibility, if you have a down payment of 20 per cent or more, is lengthening your amortization from 25 to 30 years, which boosts buying power by about 8 per cent, according to McLister.

Logging in more kilometres will also help you get the house you want.

“If you’re open to commuting, you can drive an hour and get at least 30-50 per cent more home for the same income,” he said.

And, then, obviously, there’s buying a smaller house.

The rule of thumb Freeland advises clients to use is to aim for a mortgage no larger than four times their income.

“Even 4.5 times is pushing it,” he said.


~~Article sourced from: 2018 Global News, a division of Corus Entertainment Inc.