It just got a little easier for some Canadians to pass the stress test.
Bank of Canada lowered the qualifying mortgage rate on Friday, from 5.34 per cent to 5.19 per cent. This is the first time in three years that the rate has dropped. The last time the rate dropped was in September 2016, back then the rate decreased by 0.10 per cent to 4.64, the Canadian Press reports.
Mortgage applicants are tested against this five-year benchmark rate or their qualifying rate plus two per cent, depending on which is greater. That means this slight decrease could make a difference for some Canadians applying for a mortgage.
According to RateSpy.com’s calculations, someone with $50,000 in yearly earnings making a 20 per cent down payment can now afford a home that’s roughly $4,000 more expensive thanks to the new rate. This is assuming they have no debts and that they’ll have a 30-year amortization period, the Financial Post reports.
Experts agree that the rate drop won’t have a huge impact on the housing market, but it will give some Canadians hope.
“It will be an incremental positive psychological boost for buyers,” said chief economist Sherry Cooper, of Dominion Lending Centres, in a statement. “It should also counter, in some small part, what’s been the slowest lending growth in five years.”
Home sales across Canada slowed considerably last year as a result of increased mortgage rates and the introduction of the stress test. Specifically, in February 2018, sales dipped to their lowest levels since 2012.
Ever since the stress test was introduced, a number of organizations have also been vocal about the need for the federal government to relax the rules.
Coincidentally, the announcement about lowered rates came one day after the Ontario Real Estate Association (OREA) called for changes to the stress test. In a letter to the Standing Committee on Finance, OREA CEO Tim Hudak called the test “disastrously flawed” and highly recommended the rules be softened.
The restrictions “are unfairly disadvantaging home buyers, especially millennials looking to enter the market for the first time or young families looking to move up,” Hudak wrote.
Although the new five-year benchmark rate is certainly good news from some prospective buyers, it hasn’t really changed the system that much, Samantha Brookes, CEO of broker Mortgages of Canada, told CBC.
“Consumers are in this wait-and-see pattern — it's still difficult to get into the market because that stress test is there.”