(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

Lacombe FCSS forced to scale back programming

Alberta Ministry of Children’s Services announced the termination of a number of programs

PHOTO: AA Lacombe Generals support Food Bank

Food donations and $127 dollars raised

AHS: Spread joy, not germs: stay healthy this holiday season

More than 660 cases of influenza have been confirmed in Alberta

Red Deer-Lacombe MP, other Conservative MPs meet with AB justice minister

Calkins said the justice system is a revolving door for criminals targeting rural areas

WATCH: CP Holiday Train supports Lacombe Food Bank

Madeline Merlo and JUNO Award nominee Scott Helman both performed

Day parole revoked for man who strangled wife, buried body in their Calgary home

Parole Board revoked Allan Shyback’s day parole after he had sex with a massage parlour worker

Alberta plans to reduce surgery wait-times by building operating rooms, using private clinics

Health minister says goal is to have 80,000 more surgeries done over the next 3 1/2 years

Sylvan Lake woman charged with fraud over $500,000

Rimbey RCMP launched an investigation in July 2019 with the suspect turning herself in on Aug. 30

VIDEO: Calgary man narrowly escapes from avalanche while running at Lake Louise

Bryon Howard caught the entire wild experience on camera

No jail but big fine for Alberta store owner convicted of illegal gun sales

At the conclusion of Monday’s hearing, the Crown stayed the remainder of the charges against the father

Anti-money laundering agency warns casinos to watch gamers playing with bank drafts

Financial Transactions and Reports Analysis Centre of Canada, known as Fintrac, issues operational alert

China hints at national security trials for 2 Canadians detained for one year

The two Canadians’ detention is largely seen as retaliation for the arrest of a Huawei exec

Teen seriously injured: Police in Lethbridge, Alta., charge 5 people in swarming

Police say a 16-year-old boy made arrangements to meet with a young woman before he was attacked

Most Read