The Office of Superintendent of Financial Institutions put a new rule into effect for conventional mortgages Jan. 1 that may impact how much someone looking to buy a home can afford.
According to Sherry Jenkins, mortgage consultant with Airdrie’s Axiom Mortgage Solutions, the change could mean a homebuyer will be able to afford 20 per cent less house.
“They introduced a stress test and that is so people have to qualify at a higher rate than what their actual rate is, so if rates were to go up, people will be able to afford their house,” she said. “They say it’s taking about 20 per cent purchasing power out of that piece of the market.
“It’s on those files where people might be pushing to the very edge of their qualifying numbers. We look at their income compared to the cost of the house and also their debt that they carry…and we have to hit a certain percentage. We now have to qualify them at a higher rate.”
Under the new rules, homebuyers are required to qualify at two per cent points above the actual mortgage rate. For example, at a mortgage rate of 3.29 per cent a homeowner would have to qualify to be able to afford 5.29 per cent.
According to Jenkins, Canada’s federal financial regulator first introduced this requirement for high-ratio mortgages in October 2016. High-ratio mortgages are those that are insured by Canada Mortgage and Housing Corporation and have a down payment of between five and 20 per cent. The latest round introduced Jan. 1 applies the same rule to conventional mortgages.
“The first-time homebuyer putting five per cent down – we had to introduce that stress test last October (2016),” she said. “That’s already been in our market for over a year.”
If you’re renewing your mortgage with the same financial institution, you likely won’t feel the impact of the new regulation, Jenkins said.
“If you stay with the same lender you’re never going to really have to re-qualify. If you’re going to move to a different lender or you’re going to re-finance, they may have to look at those ratios,” she said.
“The rules are so new that I don’t know for sure. Any new lender you might go with has to re-qualify you.”
Jenkins said she thought the new regulation wouldn’t have too much effect in the local market.
“There’s not a lot of risk there. I mean, I think they just are looking especially in the Toronto and Vancouver market. That’s really what this is designed for,” she said.
“Here, I don’t think you’re going to see it quite as much. I think I might have had a couple of files last year that wouldn’t have qualified under the rules but I think most won’t be affected.”