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The Stress Test and CHBA Recommendations – Update

The Stress Test and CHBA Recommendations
(May 2021 Update)

Federal Government and OSFI Changes to Stress Test for Both Insured and Uninsured Mortgages

Changes to the stress test for both insured and uninsured mortgages took effect June 1, 2021.

The stress test rate is now the greater of the borrower’s mortgage contract rate plus 2 per cent, or 5.25 per cent (this is an increase from the floor of about 4.79 per cent right now). This applies to mortgages approved on June 1, 2021, or later.

CHBA confirmed with OSFI and the Department of Finance, and communicated accordingly to members, that if a mortgage was pre-approved through documentation by the buyer's financial institution before June 1, the new minimum qualifying rate does not apply, even if the sale does not close until after June 1. There must also be a signed purchase and sale agreement.

CHBA’s Position

CHBA has been vocal in opposition to changes to make the stress test more stringent for either insured or uninsured mortgages. This has included extensive government advocacy even prior to the announcement of the proposed changes, and very active engagement since, including outlining CHBA’s concerns to Finance Minister Freeland and Minister of Minister of Minister of Families, Children and Social Development Ahmed Hussen, and to the new CEO of CMHC.

Given the current low interest rates and very active housing market, despite the fact that the change reduces the buying power of those at the margin by approximately 4 percent, it is not expected that this change will have much effect on the market or CHBA members—still, it is not a step in the right direction. That said, there has been overwhelming support for this change in the financial sector, and it is therefore not surprising under the circumstances that this change proceeded. It is also a relatively minor move compared to other measures that could have been taken in an ill-advised attempt to cool the market. CHBA was pleased that post extensive CHBA advocacy, no such measures were included in the 2021 federal budget. CHBA will continue to engage with the federal government to consider other measures that can help prospective buyers make responsible decisions about homeownership and be able to enter the market, especially first-time buyers.

Next Steps: CHBA’s Recommendations

CHBA continues to recommend that the stress test (for both insured and uninsured mortgages) be modified to reduce the test rate on a declining basis for 7 and 10 year mortgage terms, given the reduction in risk with longer mortgage terms for both Canadians and the financial system, as encouraged by the Bank of Canada.

CHBA also still recommends a return to 30-year amortization periods for first-time buyers. Such changes would go further support well-qualified home buyers access homeownership while strengthening the economy and the Canadian financial system. And, of course, more housing supply is needed ASAP.

For more background on the stress test and CHBA's actions, read here.