Beginning January 1st, 2018 we will have a new standard stress test in Canada demanding a minimum qualifying rate for – yes, even uninsured mortgages with a down payment of 20 per cent or higher. This new guideline requires financial institutions to screen applicants using a minimum qualifying rate equal to or greater than the five-year benchmark rate published by the Bank of Canada or their contractual mortgage rate plus two percentage points.
This announcement, of the OSFI (Office of the Superintendent of Financial Institutions) puts forward the idea that the stress test is needed to reduce risks connected to high household debt across Canada due to high housing markets in the GTA and Vancouver.
Continual attempts in recent years from multiple levels of government to negatively affect pricing in these markets seem to be a preoccupation, even after the markets have already cooled on their own. Unfortunately, when rule changes coincidentally occur in close time proximity to when the market has already corrected itself, it allows governments to pat themselves on the back and to think they can control real estate markets, which they can’t any more than can realtors or mortgage brokers. The only group that has ever controlled a real estate market is the public, who act based on personal motivations. Home buyers and sellers directly cause supply and demand factors as the direct result of needing or wanting to buy or sell real estate.
It has been suggested that any new purchase and sale real estate transactions that become firm before the effective rule date of January 1st, 2018, will likely be grandfathered in on the currently existing guidelines. What does this mean to you? It means that if you are someone that is thinking of moving or buying an investment property in the near future, you may wish to make that move before the new rules come into effect, as many people will no longer qualify for the mortgage they need after January 1st. Even before the rule announcement, prices have slowed considerably since the beginning of April, making this a great time to buy. If you also need to sell your home, consider that if more buyers are removed from the market, there is great potential for prices to cool further, making now a better time to sell than after January 1st as well.
If you would like to further discuss how this affects you, or how to formulate the best plan for your move, please call me anytime at 416-406-4440. If you don’t reach me directly, please leave a message, and I will return your call as soon as possible.