46% of mortgages are a part of the country’s 1.5 trillion mortgage outstanding, according to Bank of Canada data. In January when the new mortgage rules take effect their could be a significant impact to the housing market.
The Effect of the New Stress Test Regulations
The latest lending restrictions, could also slow interest rate increases next year. The Bank of Canada may pause to access the effects of the new regulations. These new rules will subject all buyers to stress testing to prove they can handle the greater between the interest rate increases beyond the five-year benchmark rate of the Bank of Canada or 2% more than their contracted mortgage rate, even if they are providing a 20% down payment.
When and Who Will be Effected by the Stress Test
Starting on January 1, 2018, these new regulations could dampen the housing market, more so than other measures taken by the federal government in recent years. According to a survey by industry group Mortgage Professionals Canada, 1 in 5 potential home buyers will be disqualified due to the stress test.
First-time home buyers in our red hot Vancouver market often used gifts and loans from parents and others to qualify for uninsured loans when stress tests were introduced last year for insured mortgage applicants and will not meet the standards of the new regulations. Move-up buyers could also be impacted hard as they are more likely to have the equity to qualify for a uninsured mortgage.
Beat the Clock and Enter the Real Estate Market
With the clock ticking and the year wrapping up, now is the time for those looking to enter the market to do so while avoiding the new stress test regulations coming down the pipeline.