(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

Qualicum Bay writer Linda Tenney dies after battle with cancer

Celebration of life set for Nov. 2 at Lighthouse Community Centre

Parksville Qualicum Beach legions set to launch Poppy Campaign

Annual fundraiser to run from Oct. 25 to Nov. 11

Bear sightings up significantly in Parksville Qualicum Beach area

Fruit trees number one food attractant, says conservation officer

Parksville Qualicum Beach crime report: Thieves pilfer laptops, tools, big-screen TV, cash and more

Oceanside RCMP received 256 complaints between Sept. 29 and Oct. 5.

Pole-climbing thieves pilfering wire in Parksville Qualicum Beach area

Repairs are costly and thefts jeopardize public safety

B.C. mayor apologizes for removal of Queen’s portrait from council chambers

‘I prefer to be inclusive of the many aspects of our history’

Environment Canada issues gale warnings for western Vancouver Island

Gale warnings in effect for most of Vancouver Island and west coast Mainland

Report suggests new BC Ferries terminal near YVR

Metro Vancouver currently has two ferry terminals at northern and southern reaches

B.C. woman must pay $1,000 after unleashed dog bites another

Owner should never have left Bibi unattended, tribunal member wrote

Climate activist Greta Thunberg’s mural defaced in Edmonton

The eyes on the portrait were blacked out

Rare bird spotted in Victoria draws enthusiasts from across the continent

It’s the first time a yellow-browed warbler has been reported on the mainland of North America

Alcohol a possible factor in crash that killed 17-year-old girl near Williams Lake

A pickup truck left the road and rolled over on Highway 20 on the weekend

App designed to help cut waste and grocery bills

Food security advocates say addressing poverty is ultimate key

Most Read