If you’ve been paying attention to the mortgage market over the last year, you’ll know all about the new mortgage stress test and regulations. If you’re new to the scene, here’s a recap. Back in 2017 the Canadian housing bubble was growing bigger and bigger. Housing prices were reaching for the sky with buyers, lenders and realtors questioning when they’d come back down to earth. Canadian households were struggling to maintain record debt levels. And the Bank of Canada (BoC) had started increasing interest rates, with a plan to keep pushing them higher and higher in an attempt to control inflation.
The Office of the Superintendent of Financial Institutions (OSFI) stepped in and introduced the mortgage stress test. Normally when you apply for a mortgage your lender will make sure that you will financially be able to handle a mortgage at your selected interest rate. But since the BoC was planning on increasing interest rates, lenders are now required to test a buyer’s ability to handle the current interest rate AS WELL AS a rate 2% higher.
The immediate feedback wasn’t good. Right away numerous would-be home owners who had planned and prepared for a mortgage suddenly could no longer qualify. Many buyers have been able to pass the test but about 10% of buyers who could have moved into their new homes have now been denied mortgages. Aside from that, it looks as though the test many no longer be necessary. The Canadian economy has softened and looks to continue doing so over the next two years. And the BoC halted interest hikes in October and has not given the impression they will be continuing forward with further hikes until the Spring at the earliest.
The new mortgage regulations have also created a secondary issue in the mortgage market. Because most of those being denied a mortgage are first-time home buyers, fewer starter homes are selling, and the sellers are struggling to get into their next home. The same is true of the next tier of sellers who are waiting for someone to buy their home so they can move up (or down) a tier. On top of that, some of those who had previously intended on making an upward move in real estate may not even qualify for a lateral move.
How to stay afloat
If you’re looking for a way to ride the waves created by the OSFI stress test and rules, we have a couple of life rafts for you. If you DID manage to pass the stress test, hooray! You’re floating on your way. However, if you have not yet sold your primary property in order to move in to the next one, we have a suggestion. You may want to consider getting into the rental market. Keep your initial property and use it as a rental once you’ve moved into your new home. Because so many would-be home owners have been denied a mortgage, they are turning to rentals instead. Now is a great time to cash in on this market!
If you DIDN’T pass the stress test, we hear you. Feelings of frustration and hopelessness are bound to creep in after being denied the mortgage you were planning for. Whether you are ready to make the move from renting to home ownership, making a move to suit your changing needs, or looking for a place you can teach your pet goat to parkour (send us your youtube videos), we want you to find success. Our suggestion to you is to find a cosigner. This option works over and over and is an easy way to get your mortgage lender to approve your application. As an added reassurance for your cosigner, Your Trusted Mortgage Broker has access to a lender who can allow your cosigner to leave the contract after one year. Bonus!
If these options are something you’d like to look into further, or if you’d like more details on the mortgage stress test, please contact us today.