As some were celebrating New Year’s Day, the federal Office of the Superintendent of Financial Institutions (OSFI), was implementing its new mortgage changes first announced last fall. Buyers who are making down payments on homes of 20% or more, will now have to pass a “stress test,” meaning they will have to qualify using the larger of the Bank of Canada’s benchmark rate (now 4.99%) or the rate in their contract plus two percent.
The upshot is that buyers, who may not qualify under these regulations, may have to start looking for a less expensive property. The alternative would be to save up for a larger down payment.
According to an article on radio station, 102.1 The Edge, some homeowners may have to look at homes up to 20% cheaper. Although, as Will Dunning, chief economist at Mortgage Professionals Canada, notes, it might end up being more like 6.8%, as the 100,000 possible home buyers, affected by the stress test, often have wiggle room in their budgets, preferring not to push themselves to the limit. Dunning estimates it may have a negative impact on roughly 50,000 of that 100,000, who would make a different (cheaper) purchase. Others may have to abandon their home buying dreams temporarily.
The legislation has just gone into effect, and the jury is still out on whether it will do what OSFI designed it to do: “limit… the amount of debt that Canadians and financial institutions take on,” as the Edge suggests.
Questions remain. But so far, it’s very much an issue of “wait-and-see.”