Buyers work around mortgage stress test

by REP on 17 Jul 2017
A new report reveals Canadian sentiment about homebuying in Canada – including just how impactful the stress test might be.

In its latest report, entitled Consumers’ Perspectives on Homebuying in Canada, Mortgage Professionals Canada aimed to simulate what percentage of prospective homebuyers would be impacted by the stress test policy that requires high ratio buyers to qualify at the posted rate of 4.64%.

According to the simulation – which included buyers with less than 20% down payment who could afford a market interest rate of 2.6% -- 20% would fail the stress test and therefore would not qualify for mortgage financing.

Of those who would fail, 45% said they would increase their down payment amount; 45% said they would buy a less expensive home; 20% would look outside their original targeted region; 39% would delay their purchase; 5% would do something else; and 7% did not know what to do.

“The stress test would mean that a considerable number of potential homebuyers would become unable to borrow as much as they need to complete their desired purchase (even though they can afford the actual costs associated with that purchase),” MPC said in the report. “There is uncertainty about how many of these affected people would be able to make changes in order to make a purchase (buying a less costly property, increasing their down payment, or finding a borrowing alternative that does not require mortgage insurance) and how many would have to delay buying (and for how long).”

Paul Taylor, president and CEO of MPC, said the number of Canadians impacted by the stress test was unsurprising.

MPC did find the stress test is forcing some homebuyers to use pricier uninsured lending options rather than decrease their debt load.

“We agree with a mortgage stress test but it should be reflective of more realistic future interest rates so Canadians can continue to have access to affordable homeownership,” Taylor said. “Modifying the criterial has a more realistic chance of improving homeownership for consumers.”

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