(The Canadian Press)

Bank of Canada lowers qualifying rate used in mortgage stress tests

Home sales softened last year after the federal government introduced new stress test rules for uninsured mortgages

The Bank of Canada has lowered the rate used by mortgage stress tests to determine whether would-be homeowners can qualify, marking the first drop in three years.

The central bank’s five-year benchmark qualifying rate is now 5.19 per cent, down from 5.34 per cent. It’s the first decrease in the five-year fixed mortgage rate since September 2016, when it dropped from 4.74 per cent to 4.64 per cent, and increased steadily since.

The qualifying rate is used in stress tests for both insured and uninsured mortgages, and a lower rate means it is easier for borrowers to qualify.

“This 15 basis point drop in the qualifying rate will not turn the housing market around in the hardest-hit regions, but it will be an incremental positive psychological boost for buyers,” said Sherry Cooper, chief economist for Dominion Lending Centres in a statement. ”It should also counter, in some small part, what’s been the slowest lending growth in five years.”

READ MORE: B.C. real estate board urges feds to revisit mortgage stress test

Home sales softened last year after the federal government introduced new stress test rules for uninsured mortgages, or those with a down payment of more than 20 per cent, and mortgage rates inched higher.

These stress tests require potential homebuyers to show they would still be able to make mortgage payments if faced with higher interest rates or less income. The Bank of Canada’s five-year benchmark rate is calculated using the posted rates at the Big Six Banks.

As of Jan. 1, 2018, to qualify for an uninsured mortgage borrowers needed to prove they could still make payments at a qualifying rate of the greater of two percentage points higher than the contractual mortgage rate or the central bank’s five-year benchmark rate.

An existing stress test already stipulated that homebuyers with less than a 20 per cent down payment seeking an insured mortgage must qualify at the central bank’s benchmark five-year mortgage rate.

The federal financial regulator has said that the new, stricter regulations aimed to tighten mortgage lending and take some of the risk out of the market.

Meanwhile, home sales have improved in recent months as mortgage rates have moved lower.

READ MORE: Mortgage test, high supply to keep cooling B.C. housing prices in 2019, report says

But on Thursday, the Ontario Real Estate Association called for less stringent mortgage rules, saying that policy changes are needed to counter a downward trend in home ownership.

OREA’s chief executive Tim Hudak said in a letter to federal policy-makers that Ottawa should consider restoring 30-year insured mortgages, ease up on the interest rate stress test and eliminate the test altogether for those renewing their mortgage with a different lender.

Borrowers looking to renew their mortgages are subject to stress tests if they switch to a new lender, but not if they stick with their current one.

In a May letter to policy-makers, the chief executive of Canada Mortgage and Housing Corporation defended the stricter lending rules, arguing that “the stress test is doing what it is supposed to do.”

The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

Cutting down the Kaiser: How Canadian lumberjacks helped win the First World War

By Armistice Day in 1918, nearly 24,000 men made up the Canadian Forestry Corps

BCTF rejects mediator’s recommendations for settlement

Negotiations between B.C. teachers and the province will continue

Construction underway for Grand Forks Indigenous daycare

The Coalition of Indigenous Nations Society expects the centre to open March 2020

RCMP disrupt Castlegar-Trail-Salmo drug flow

Bust on Nov. 6 leads to two arrests

Boundary Historical Society goes digital

The society’s 17 published reports are now available online

VIDEO: Don Cherry says he was fired, not sorry for ‘Coach’s Corner’ poppy rant

Cherry denies he was singling out visible minorities with his comments

Report predicts drug resistance likely to kill 400,000 Canadians by 2050

This increase is expected to cost Canada 396,000 lives, $120 billion in hospital expenses

Sportsnet fires Don Cherry after negative comments about immigrants

Don Cherry had said immigrants don’t wear poppies like other Canadians do

Trudeau’s new cabinet: Gender parity because it’s 2019? Or due to competence?

Prime Minister Justin Trudeau will soon appoint his new cabinet

Canada among three G20 countries least likely to hit emissions targets

It says Canada, South Korea and Australia are the farthest off

Conservatives’ Scheer wants Trudeau to open Parliament Nov. 25

That’s five days after Justin Trudeau is scheduled to swear in a new cabinet

Last remaining Centurion tank from the Korean War makes its journey ‘home’ to B.C.

Tank arrives in B.C. the day before Remembrance Day after a more than 4,500-kilometre transfer

‘Your vehicle burns a lot of fuel:’ Victoria drivers wake up to angry notes

‘This handbill was left on your vehicle because your vehicle burns a lot of fuel,’ notes read

Canadians mark Remembrance Day this morning

This year exactly 101 years to the day after the end of the First World War

Most Read