Sask. realtor explains mortgage stress test change

Saskatchewan realtors are hoping a change to the mortgage stress test will help the housing market by giving more buying power to prospective homeowners.

The stress test is applied to people who have less than 20 per cent of a downpayment saved. They can only qualify for an insured mortgage if they prove they can make payments under a benchmark interest rate.

According to Jason Yochim, president of the Saskatchewan Realtors Association, the benchmark interest rate for the stress test was set at 5.19 per cent by the Bank of Canada, despite the fact that most other banks and lenders offer much lower interest rates.

“Even though they get a lower rate with their lender, the qualification had to be based on that higher rate,” Yochim said. “That’s where the cushion of protection was supposed to come in, that if they had to qualify for a higher rate even though they would be paying a lower rate, it ate up some of their affordability to buy a house.”

The problem was, the stress test was created to address inflated housing markets like Vancouver and Toronto. But Yochim maintains one size does not fit all and it hurt the housing market in Saskatchewan, which was already declining due to other economic factors.

“What we saw here was people not qualifying for mortgages anymore. We also saw people that could have bought a single family home now looking at a multi-family condominium or something because their affordability was eroded,” Yochim said.

Starting April 6, the benchmark rate for the mortgage stress test will be adjusted closer to the five-year average rate of 2.89 per cent offered by lenders plus two percentage points. So instead of qualifying for a mortgage under a benchmark of 5.19 per cent, the qualifying rate will be adjusted to 4.89 per cent.

While the adjustment may seem small, Yochim said it is good news for the Saskatchewan housing market, where prices have been declining for the last three to four years.

“I think it’s a move in the right direction to help our marketplace. I’m excited about it because it is that positive move,” Yochim said. “On the average home-sale price in the province — or at least in the two major cities — it would give (people) about five per cent more buying power.”

While applying a higher stress test might be considered a good thing to protect people from taking on payments they can’t afford, Yochim said most home buyers are prudent with their finances. He pointed out sometimes people with lower incomes are better at managing money.

From a real estate perspective, Yochim said allowing buyers to qualify for more expensive mortgages will help more people get into the market and may stabilize housing prices that have been dropping for years.

He said this is also good news for people who bought houses in the last three years and then saw the value of their home drop below their original mortgage.