As anticipated, Canada’s banking watchdog, the Office of the Superintendent of Financial Institutions (OSFI), confirmed on May 20th that the mortgage stress test for those with uninsured mortgages will increase from 4.79% to 5.25% on June 1st.

Soon after, Canada’s Department of Finance confirmed it will follow OSFI’s lead and apply the same qualifying rate to insured mortgages.

What does this change mean for your clients? 
It means any Canadian purchasing a home – whether they’re putting down 20% or more (uninsured) as a down payment, or less than 20% (insured) – will have to prove they can handle a mortgage rate of 5.25%. This also applies to anyone who is refinancing.

For anyone with an accepted offer on a home or a mortgage approval dated prior to June 1st, the existing stress test of 4.79% applies.

Why the change?
It’s due to concern about unsustainable house prices and growing household debt. OSFI believes that the change will help ensure that Canadians can still afford to service their debt should the economy change, and interest rates increase.

Is this a big deal?
According to Brendon Ogmundson, BCREA’s Chief Economist, the change is unlikely to have much of an impact on the majority of buyers. It will reduce purchasing power by 4 to 5 percent. However, first-time home buyers, will likely experience further difficulty in trying to enter the market.

In an exclusive Q & A with FVREB Communications immediately following OSFI’s initial announcement in April regarding the intention to strengthen the stress test, Ogmundson revealed that this change is likely a preview of more cooling measures to come.

FVREB Communications