How Homebuyers are Affected by the New Stress Test
Friday Jun 11th, 2021
The real estate market has been slowing down since April 2021, but the Bank of Canada has enforced the new rules of the stress test in terms of unsecured mortgages. This was a federal intervention to cool down the hot seller’s market. This article will discuss what these new rules can affect homebuyers.
Since June 1, 2021, the minimum qualifying rate of 4.79 went up to 5.25. This means that if you qualify for a mortgage of 500,000 prior to the new rules, it can go down up to 4% or about 479,000.
The whole new rule sits on a new calculation of the minimum qualifying rate for uninsured mortgages is set at either the mortgage contract rate plus two percent or 5.25 percent — whichever one is greater.
These can mean two main things for the real estate market.
Slow down the market further
The Canadian Real Estate Association (CREA) has reported a drop of about 12.5% of home sales from March to April 2021. With the new stress test rates, this can further slow down the home sales until it can reach a more balanced market.
This can be good news to home buyers who are expecting a “post-rule change housing slowdown” that can better listing prices. Industry experts also noticed that there is no rush to buy activities before the new stress test came in place, which further proves home buyers are holding out for lower listing prices when the market cools down furthermore.
Hard on the first time home buyers
It would be harder for first-time homebuyers to afford uninsured mortgages after this new stress test rule. Some lenders and brokers expect first-time homebuyers to co-sign with their parents to be able to afford a mortgage.
On the other hand, this also helps home buyers to not take in more debt than they can afford. Although some finance experts mentioned that there has been a low delinquency rate in Canada sitting at only 0.25% nationally, as reported by the Canadian Mortgage and Housing Corporation.
It is always a good idea to consult with an industry professional when it comes to your finances and buying a home. Partnering with a professional real estate sales representative can also help you determine where you stand in terms of listing options and affordability. If you want to sell a home, consulting with professionals like JoAnn Visaretis can help you know your numbers and your market value better.