My Predictions For Impacts of New Mortgage Stress Test

Stress test

The new year has arrived & with it, a fresh round of mortgage rule tightening.  The new restriction comes in the form of a “stress test” & applies to new mortgages with equity of 20% or more.  Qualifying for these mortgages will now have to be done at a rate that is 2% higher than your contract rate.

Previously, a stress test was already in place for all insured mortgages (purchases with less than 20% down), as well as borrowers with uninsured mortgages that took a fixed term shorter than 5 years or a variable rate, meaning that if a borrower with 20% or more down chose a 5 year fixed, they could qualify for the mortgage based off their actual interest rate.  Under the new rules, that will no longer be possible through major lenders.

Oddly enough, the new stress test can actually end up being more restrictive than that imposed on insured mortgages.  A borrower with the bare minimum down payment of 5% has to qualify for their mortgage based off the 5 year posted rate (4.99%), whereas a borrower with a down payment of, say, 50% who takes a 5 year fixed rate of 3.2% would have to qualify based off the stress test rate of 5.2% (3.2% + 2%).  The borrowers impacted by this change will qualify for maximum mortgage sizes of roughly 25% lower than under the previous rules.

 

My prediction is that the new stress test will actually end up making condos in Vancouver even more expensive, while also driving borrowers to shorter term mortgages & ironically making them more vulnerable to the interest rate fluctuations this was designed to protect them from.

People are always going to want to own property in Vancouver.  If borrowers are qualifying for mortgages that are 25% lower, many are still going to want to buy, but will just have to look at lower priced property.  Residents of Vancouver have seen the price of property accelerate at warp speed.  The FOMO is real & many will be approaching this as a final opportunity to own in Vancouver, regardless of the size of place.  This will funnel demand into the lower price points.  Those who are no longer able to buy in the price point they want will continue to rent which will keep pressure on the rental market.  Both of these would suggest condos are going to end up becoming even more expensive than they are currently.

 

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