A lot of people have been asking us about the new "Stress Test" that banks are required to implement starting January 1st, 2018.
There have also been a lot of news coverage on the new rules.
So how does it affect us?
Story #1, From CTV News
What is the "Stress Test?"
From the article: Would-be homebuyers will need to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada. An existing stress test requires those with insured mortgages to qualify at the Bank of Canada benchmark five-year mortgage rate.
Story #2 from Global News
The Impact on the Canadian Housing Market
From the article: “The new measure will slow the housing market, particularly in the first half of 2018, as buyers adjust both their expectations and finances,” reads the report.
As of Jan. 1, most Canadians planning to buy a home with a downpayment of 20 per cent or more will face a stress test that ensures they would be able to cope with higher interest rates, a measure that’s already in place for homebuyers with smaller down payments, who require mortgage insurance. Tougher standards will also apply to those applying for refinancing or switching lenders when renewing their mortgage.
Story #3 from Castanet.net
Housing Market Cools
From the article: New stricter mortgage rules are expected to slow the housing market next year, but prices are still expected to rise about five per cent, according to a report by Royal LePage.
The new rules are expected to reduce the maximum amount buyers who have a down payment of 20 per cent or more will be able to borrow starting Jan. 1.
Royal LePage said some potential buyers looking to upgrade may delay listing their homes as they will not be able to access sufficient financing for a planned new home.
However, it said that with further diminished affordability, it is likely that demand for entry-level properties will surge.
Story #4 from Global News
From the article: Canadians hoping to buy a house in 2018 and who are able to afford a large down payment might be able to get a bigger mortgage through credit unions.
According to estimates, the new stress test means "the same borrower would qualify for a mortgage that is 15-20 per cent smaller in 2018 than what she would have been able to get in 2017", said Bryan Freeman, vice president and mortgage agent at CanWise Financial.
By using a credit union in 2018, homebuyers could potentially sidestep the stress test and get a larger mortgage.
The facts are, it will be harder to obtain a larger mortgage at traditional banks, meaning less buying power. We don't have a crystal ball that tells us what is going to happen, however, less buying power typically means lower prices, but that doesn't guarantee that will happen in Kelowna.
Especially if buyers can go to a credit union to side step the new rules.
Regardless, you can count yourself up to date on the new rules. How it affects the market can ONLY be determined by how the market reacts in the coming months. If you are a buyer, get prequalified with your lender now and ask how long it is good for. You could save yourself a headache as many prequalified buyers can avoid the stress test by getting prequalified before the January 1st, 2018 implementation, however it varies bank to bank, so ask your mortgage specialist before the new year.