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m, n92, p3, 2, c, 5r2, z, 6, 7, Mortgage "Stress Test" | Flynn Real Estate

Mortgage “Stress Test”… how will real estate be affected.

So first off, lets go back to October 17, 2016. The Canadian government introduced it’s new mortgage lending rules that mainly targeted home buyers with less than 20% down. Some argue, (and I agree) this affected the most vulnerable first time home buyers from getting into the market by introducing the first stress test where buyers with less than 20% down had to qualify at the Bank of Canada’s fixed rate of 4.64% at the time. There were also a few other changes to qualifying ratios etc. Note; this did nothing to ease the market or slow rising real estate prices.

Fast forward one year to October 2017. The Canadian government introduces another stress test that includes everyone this time. It comes into affect January 1, 2018. Buyers will have to qualify just under 5% (4.89) or their negotiated rate plus 2% whichever is greater. So lets be clear. Even if you have 75% down, you’ll need to go through the stress test if applying for a conventional mortgage in Canada. There’s also 2 more changes to ratio’s and lending practices included in the 2017 announcements.

Lastly, lets not forget the “Ontario Fair Housing Plan” that was introduced in April this year to cool the housing market in Ontario “to help more people find affordable homes”.  These measures were seen as the turning point in Ontario’s property values but since it was only for Ontario the Canadian government still had the rest of the country (Vancouver) to deal with.  After implementing the Fair Housing Plan the officials were worried it wasn’t enough so went back to the drawing board to amend the stress test.

What’s going to happen now?  Lots of speculation followed by wait and see.  I can tell you what’s already happened in Niagara.  Once the new mortgage rules were introduced in mid October the market was energized and sales were strong again.  Maybe people were buying before the new year to avoid the uncertainty of what’s to come.

Moving forward into the new year, here’s what we do know.  The new stress test will reduce buyers purchasing capacity from 5 to 20% depending on their downpayment and price range.  Alternative and unregulated lenders (i.e. private lenders) are not subject to new (or old) stress tests.  Lastly, the government’s plan is to cool the housing market which really mean they want to freeze or reduce home prices.

My predictions.  I’ve been of the opinion since 2016 that property values are not sustainable in Ontario.  Even without government intervention I believe the market will go about it’s normal cycle and would eventually cool.  2017 was my prediction for the turning point.  That’s easy to say now, of course my predictions are 100% accurate looking to the past.  For 2018 I believe there will be further cooling.  I wish I could predict exactly how long or how much.  It’s basic math, less borrowing power, tougher lending practices, higher interest rates = lower house prices.  One thing I do hope for is a balanced and sustainable soft landing.  For the most part, higher home prices are here to stay!


This is the sole opinion of Jon Flynn, Broker of Record, Flynn Real Estate Inc., Brokerage

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