As the housing market is critical to the economic and social health of a country, the Government of Canada has the responsibility to help keep the industry stable and healthy. Our long-time conservative banking practices have saved us from the crisis the United States hit a few years ago. The mortgage stress test implemented in Canada in 2018 was one such measure. Its goal was to ensure that people could afford to keep their homes if interest rates should rise.
The stress test also cooled the housing market, especially with first-time and move-up buyers postponing purchases en masse, so has been controversial. All three levels of our Builders’ Associations in Canada, the Toronto and Canadian Real Estate Associations and many mortgage professionals and Canadian banking executives called for the stress test to be revisited. In response to this situation, Finance Minister Bill Morneau announced that the Government of Canada is changing the benchmark rate used to determine the minimum qualifying rate for insured mortgages. The new rate, which will come into effect on April 6, 2020, will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2 per cent.
In the Government’s press release issued on February 18 (https://bit.ly/32fJB05), the point is made that the adjustment makes the stress test “more representative of the mortgage rates offered by lenders and more responsive to market conditions.” The stress test has protected buyers from overextending their ability to make their mortgage payments. Nowadays, however, with unemployment low, immigration high and interest rates still historically low, it is not as necessary. The adjustment will benefit all involved.