The mortgage stress test introduced at the end of 2017 had the purpose of helping Canadian homeowners in their financing while preventing “loose” lending. However, in recent months we have seen how these measures have been stopping first-time homebuyers from entering the market. There is thus a call for policies that will incentivize homebuyers.
Over the past two years, there have been many changes in policy to stop the price increase of housing, particularly in Toronto and Vancouver, and to correct the affordability issue faced by many Canadians. The government of B.C. introduced a foreign-buyers tax, the Bank of Canada started raising their interest rates, and then the mortgage stress test was introduced. Since then, the interest rates have been rising and more people are finding themselves out of access to mortgages with banks.
Qualifying for Bank Mortgages
Since the mortgage stress test became into effect, 10% of Canadians that before had access to mortgages with banks no longer do so. Many in the 10% are first-time homebuyers or expanding families that need financing for their purchase. These families are being forced to rent which has caused the rental market to reach unaffordable levels.
Why is the Mortgage Stress Test failing Canadians?
Most policies implemented by the government to cool down the housing market were based on strong employment data and GDP growth. Nonetheless, the economy is now forecasted to grow by 2.2% in 2019 and then by 1.9% in 2020, and many Canadians can no longer prove that they can afford a downpayment and a mortgage with a bank. Homebuyers are now seeking outside lenders to be able to enter the market.
Investment in real estate is one of the safest and most reliable investment models for Canadians and first-time homebuyers need to be incentivized to enter the market. The mortgage stress test might have worked to normalize the market but it started to become counterproductive with the current market.
If you want to discuss the current market, please reach out using the form below or give us a call to (604) 281.1050.