Housing prices were going up up up and away. The Bank of Canada (BoC) was increasing interest rates, and boldly announced they fully intended to continue doing so. And Canadians were already dealing with record high debt levels and struggling to keep their heads above water. The Office of the Superintendent of Financial Institutions (OSFI) decided something needed to be done. In 2017 the OSFI announced the mortgage stress test. A test designed to ensure that home buyers would be able to handle not only the current interest rates but higher interest rates as well. A test also designed to try and cool the housing market and bring prices back down into this world.
Did it work?
The mortgage stress test has left nearly every potential home buyer swimming through doubt and worry. Most come out the other end of the pool relieved to have passed the test and happy to be home owners. The rest, 10% to be more accurate, are yanked out of the pool and told they aren’t ready. Some are of the opinion that we don’t even need the stress test anymore. The Canadian economy is softening and is expected to keep softening through the next two years. And despite such a confident stance, the BoC hasn’t implemented another rate hike since October.
The stress test has also created a tricky side effect. The housing market works in tiers. Buyers generally start somewhere near the bottom with what they can afford, and as their circumstances change and improve they move up through the tiers, often pouring the equity from one home into the next. Unfortunately, because of the new regulations, many first-time home buyers can’t get approved, which has caused decreased movement through the other tiers. Those looking to move on to their next property can’t get any traction because they don’t have anyone to sell to. On top of that, previously existing home owners who are looking to move into a new property are also struggling with the new mortgage rules. Previously they would have been able to make an upward move, but now are lucky to get approved just for a lateral move!
If you did manage to get approved for a mortgage under the OSFI regulations, wonderful! You can breathe a heavy sigh of relief and we hope the rest of the process will be smooth sailing! But we do have something for you to consider. If you can manage it, you could look into using your existing property as a rental after you move into your next property. Those who are being denied a mortgage are often having to look for a place to rent instead. Which means the rental market is a good market to cash in on!
If you didn’t manage to get approved under the stress test, we feel for you! Trying to take the next step in where you lay your head is a big decision to begin with, and being told “no” can leave you floundering, confused about what to do next, and feeling helpless. Whether you were hoping to buy your first home, a new home to fit changing circumstances, or the perfect place to accommodate for your weekly Fantasy Football meetings (no judgement), being rejected is a frustration. Our suggestion to you is to find a cosigner. This may seem unappealing at first, but it is done more often than you think and is usually a quick way to change that mortgage lender’s answer from “no” to “yes!” And if you’re still on the fence, you should know that Your Trusted Mortgage Broker can get you in business with a lender who will not require your cosigner to stay on the mortgage agreement for any longer than a year! Win win.
If you’re not ready to get out of the pool just yet and would like to learn more about our tips to get along swimmingly despite the OSFI stress test, contact us today!