(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

Australian gold mining giant acquires Red Chris mine

Newcrest now owns 70 per cent of the mine south of Iskut and operatorship

Haida Gwaii storm causes B.C. ferry delay

Skidegate to Prince Rupert route affected

Prince Rupert Rampage 2019-20 season schedule released

Trio of games against Terrace River Kings plus showdowns against new teams highlight the season

Council briefs: Gurney marks one year as Lester Centre’s manager, marina revenues down

Council supports Métis Awareness week but has concern over raising Infinity Flag

In-brief: Electric charging station available in Prince Rupert, Metlakatla senior housing taking applications

Weather dampens paving plans on McBride, The Northern View Cannery Road Race is coming down the road

Captain, all-star, MVP, and all about the team

Brittanne O’Connor’s drive to create Prince Rupert’s own women’s team has led to success and inspiration

The Northern View announces inaugural Tyee Fishing Derby in Prince Rupert

More than $7,000 up for grabs for biggest legal salmon and halibut

The Northern View 2019 Readers Choice

It’s that time of year again! Vote online or at the Prince Rupert office before noon on Aug. 30

Clean the house, prep for your next trip: Tips to nix the post-vacation blues

48 per cent of travellers are already stressed about ‘normal life’ while still on their trip

Couple could go to jail for taking 88 lbs. of Italian sand

Pair said they didn’t know it was illegal to take the sand, which is protected as a public good

More women may need breast cancer gene test, U.S. guidelines say

Recommendations aimed at women who’ve been treated for BRCA-related cancers and are now cancer-free

Bodies of two missing Surrey men found near Ashcroft: RCMP

Ryan Provencher and Richard Scurr have been missing since July 17

Most Read