Starting on Jan. 1, all Canadian homebuyers borrowing from a federally regulated lender will be subjected to a mortgage stress test.
Stress testing is a best practice risk management tool. Stress tests are not predictions or forecasts, they involve searching out extreme "what if" scenarios that have a very remote chance of happening, and planning for them.
The stress test determines the risk of each loan application. The new rules mean that even borrowers with a down payment of 20 per cent or more will now face a stress test, as has been the case for some time now, for applicants with smaller down payments who require mortgage insurance.
Shannon Byrt of TMG The Mortgage Group in Olds said that although the new rules don't quite spell doom and gloom for homebuyers it will present challenges.
"A lot of people don't realize that when we were purchasing houses since November of 2016, we had a round of financing changes that came in that basically mirrored what is happening now," said Byrt.
"We've been working under those changes in the insured world – so like a CMHC (Canada Mortgage and Housing Corporation) insured mortgage – so somebody that put less than 20 per cent down since November of 2016. We've been exposed to these changes, there's no question. It's just that now it's affecting people on a conventional level. Now people with more than 20 per cent down are having to qualify under this stress test. Now it's the other segment of the market that's being brought into that equation."
Byrt said that although the new changes will affect the local real estate market, the market has been exposed for over a year in some regards.
"Yes, it's going to affect our market, but it's not something that will absolutely just stop everything because we've been doing business, and doing good business for the last year and a bit," she said.
"People are still buying houses. I think it's just the combination in Alberta between having a slowdown with oil and gas and employment and a combination of changes that really affect people. So to take the positive – we have been working through it.
"We have been getting deals done. I'm doing mortgages every day. They're still getting approved. It's just we're having to work harder on files. We're having to work harder to get things done. We are getting them done; that's a positive."
Byrt said buying in a small town such as Carstairs, Cremona or Didsbury is quite advantageous since many people make as much money as they would in a big centre like Calgary but the average cost of housing is much less.
"So that's a benefit to living in a small community, for sure," she said.
Byrt said that the housing market is slow in the region although she attributes that mostly to the economy and not the rule changes.
"The slowdown in those markets happened before these changes kicked in," she said. "It's been slower ever since the oil and gas economy has slowed down. I don't think it's a direct correlation in those smaller markets."
Byrt doesn't think local homebuyers are getting turned down because of the new mortgage rules.
"What happens with the stress test – it's not that they're not going to get a mortgage, it's the fact that they maybe aren't going to be approved for as high of a mortgage," she said.
"So someone that was looking at a $400,000 house might only be buying a $340,000 or $350,000 house. It's not that you can't buy a house, it's just you'll have to buy a lesser priced home."
Byrt said that buyers can still put five per cent down on a home used for a primary residence.
"That's one of the huge myths out there – people think they have to put 20 per cent down now or they have to put 10 per cent down," she said. "That's one of the fears people have when they phone me. That has not changed. The five per cent down on a primary residence is still available to people.
"People can still use RSPs for down payments; people can still borrow their down payment if they want to. There haven't been any changes there. It's just that we're qualifying them at two per cent above."
The new rules affect residential mortgages only, not business or commercial.
