What Does the New Mortgage “Stress Test” Mean For You?

Cliff Rego
Cliff Rego
Published on December 8, 2017

Starting Jan 1, 2018, all homebuyers – regardless of their down payment – will AT MINIMUM need to qualify at the Bank of Canada’s benchmark rate, which is presently sitting at 4.99%. This rate, of course, is much higher than current mortgage rates, which sit in the high 2% – low 3% range.

So, while homebuyers will still be able to get a 3%-ish mortgage, starting Jan 1 they’ll need to shop for homes as if they’d be taking on a 5%-ish mortgage.

I won’t bore you with the math – just know that this will significantly reduce a buyer’s purchasing power – by 20% or more in many cases.

Who Will Be Affected?

Virtually all homebuyers will be affected, but those with a greater-than-20% down payment will feel an immediate pinch. Many of these individuals already own a home and would typically be looking to upgrade to something larger. Now, this “move-up” crowd may not be able to qualify for their dream home and instead opt to stay put.

Those with a less-than-20% down payment – many of them first-time buyers – will now be more concentrated on condos, townhouses and small detached homes than ever before.

Ripple Effect?

There will be a few as this new rule affects virtually everyone.

While we expect some buyers to drop out of the market, which would seemingly decrease demand in the lower price points, we still anticipate strong demand for these homes since many buyers will need to shift their focus to more affordable options.

The “move-up” segment I mentioned earlier will, again, see a significant reduction in purchasing power, potentially resulting in reduced demand for the higher-end homes to which they’d typically upgrade. This would also reduce the number of homes for sale on the market (not buying, so not selling).

And don’t forget the potential GTA impact. Given that GTA homes will be that much less affordable for EVERYONE on Jan 1, it wouldn’t be surprising to see out-of-market buyers once again flock to Waterloo Region, which would increase demand across the board.

While there will be a nation-wide impact, real estate is local in nature. Waterloo Region continues to be a desirable place to work, play and live – great for buyers and sellers.

BUYERS: December 31 is Key!

If you’re set on finding a home in your max price range, you’ll want to strongly consider buying before Dec 31. If you have a firm deal in place before year’s end, you’ll avoid the stress test.

(If this is you, make sure you’re seeing homes before they’re listed – click here to join our VIP list. Timing is everything.)

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