Impact of the stress test of mortgage lending in Canada on home buyers for the first time



The introduction of the Canadian Mortgage Stress Test resulted in a decline in the purchasing power of home buyers. The move, introduced on June 1, was taken against Canada’s boiling housing market as a possible solution to boost the market’s recovery.

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So, if you have a mortgage or plan to get one, the stress test is applicable to you. “While the pandemic has caused a stir in the Canadian housing market, this stressful update is expected to cut a homebuyer’s budget by about 5 percent,” said Lara Budjikyan, a real estate broker.

So what is a Canadian mortgage stress test?

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First, it’s not really a test, but a stricter set of rules that banks now have to use to determine if buyers are eligible for a mortgage. This usually happens in a complex and sometimes volatile housing market. Lara also explains why affordability has been an issue in the Canadian housing market, and cooling measures will only bring temporary relief. In fact, as an industry insider, Lara says this could have some unintended consequences that could exacerbate the current predicament.

How does this affect purchasing power?

The idea of ​​conducting rigorous stress tests will reduce the theoretical purchasing power of borrowers. This will greatly affect people with high debt-to-income ratios. Given the small qualification rate hike, industry insiders don’t see any significant long-term implications for the housing industry. In the short term, this could cool off hot market activity for a while, but the affordability issues seen in many Canadian cities will remain.

Impact on new borrowers

Initial borrowers are those who make a purchase at the highest possible price. This predicament can be much more difficult for first-time home buyers when they may have to rethink their budgets and what they spend on their homes. This rate will reduce the purchasing power of the average household, given the minimum qualifying rate of 5.25%. This means that if you qualify for a $ 500,000 mortgage today, that amount would drop to around $ 479,000 on June 1st. Lara says: “This change is not as significant as the ones that came before, and therefore there may not be much change.” The decline in purchasing power does not affect all buyers, but only those who are at the maximum level, on the margin for the qualification process.

There is no specific way to bypass the stress test. “Home buyers can take the necessary steps to improve housing affordability, save more, pay off some of the debts, get a joint signing, bring in some experts,” says Lara.

Given the unprecedented activity in the Canadian real estate market, from price spikes to housing affordability problems, there are undoubtedly some challenges that first-time home buyers will face. While the pandemic has changed markets significantly over time, Canadian housing markets were brewing long before the outbreak.

Lara Budzhikyan helps her clients in the conditions of the crisis of affordability, such strict regulations and growing demands for housing. The unclear scenario makes Canadian homebuyers worry about the upcoming markets, and Lara’s relentless commitment to the industry has led to some long-term decisions regarding listing price thresholds, problems that can arise with new home purchases and the process of buying and selling transactions in the industry.


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