Feds Announce Change to Make Stress Test More Dynamic


BILD Lethbridge Region and CHBA


The federal government restrictions on mortgage lending, also know as the “stress test”, has had a negative impact on the residential housing industry, and on prospective home buyers. Younger, first-time home buyers – who play a critical role in housing markets – were the hardest hit. Far too many have simply been locked-out of home ownership. The mortgage stress test shut the door on 147,000 Canadians (according to Canadian Home Builders’ Association (CHBA) estimates)—half of whom would have been first-time buyers who dreamed of homeownership— stalling movement along the housing continuum and also contributing to rent escalation and low vacancy rates. The impact of this mortgage restriction has had a dramatic effect on homebuyers in Lethbridge with the estimated purchasing power decline of 17.3% after the implementation of the “stress test”.


The stress test also pushed many Canadians into the unregulated mortgage market, which saw a rise in mortgage originations by a cumulative 27% while originations in the market as a whole fell by 11% , increasing systemic risk and mortgage rates and debt loads for those buyers.


On February 18, 2020, the Minister of Finance announced a change to the stress test for insured mortgages: the benchmark rate


Bridget Mearns Executive Officer


BILD - Lethbridge Region


(or minimum floor rate), which was previously the Bank of Canada 5-Year Benchmark Posted Rate, will now be a weekly median 5-year fixed insured mortgage rate plus a 2% buffer.


The change will make the stress test more dynamic, lowering the rate at which the borrower is “stress tested” and bringing it more in line with actual mortgage market conditions.


At current rates, the new benchmark will result in an estimated additional 5% purchasing power for prospective buyers. Based on early calculations, and current market conditions, initial estimates by CHBA suggest that approximately 20,000 well-qualified buyers who were previously locked out could be returned to the market, assuming a test rate of about 4.85%.


This change is a step in the right direction, in that it signals federal


recognition that a more responsive measure is needed. That said, more adjustments to mortgage rules, including the stress test, can and should still be made to support affordability and first-time buyers; and these can be made without adding undue risk to the financial system or excessive price escalation. BILD Lethbridge and partner associations, BILD Alberta and CHBA will continue to press for a return to 30-year amortization periods for first-time buyers and a modification to the stress test. Such changes would go further to support well- qualified home buyers access homeownership while strengthening the economy.


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