The government has taken several actions to curb housing risks.

Let’s have a look at Ottawa’s actions since the 2008 recession:

October 2017

October 2016

1. OSFI requires smaller banks to perform a stress test requiring borrowers with less than 20 per cent downpayment to qualify for the Bank of Canada’s posted five-year rate.
2. Borrowers with a down payment at or above 20 per cent to meet these same eligibility requirements.

December 2015

June 2012

1. For these with less then 20 per cent downpayment, the maximum amortization period was reduced from 35 years to 25 years only.
2. A new stress test was implemented. To qualify for a high-ratio mortgage, a home buyer’s debt costs could be no more than 44 per cent of their income.
3. Home owners who are going to refinance their mortgage can now borrow a maximum of 80 per cent of a property’s value, down from 85 per cent.
4. Government-backed insured high-ratio mortgages were available only on homes valued at less than $1 million.

January 2011

February 2010

1. The maximum amount home owners could borrow when refinancing a mortgage has reduced from 95 per cent of home’s value, to only 90 per cent.
2. A new rule came out requires owners who are not living on a property. A minimum 20 per cent down payment if they needed government-backed mortgage insurance.

July 2008

October 17, 2017 – “The Stress Test” is now a requirement for uninsured mortgages as well.

Effective January 1, 2018, home buyers who intend to buy a house with more than 20 per cent downpayment, will have to qualify for their mortgage at a higher rate. In other words, they will have to prove they can make their commitment if interest rates rise. This is the Seventh time since 2008 that the federal government has made policy changes concerning mortgages. These actions have a significant impact on the amount home buyers can borrow, or the annual income needed to qualify.

Under the new rules, the minimum qualifying rate for uninsured mortgages will be the greater of Canada’s 5 year benchmark rate or the contractual mortgage rate plus two percent. To illustrate, if a family is looking to buy a property for $1,000,000, using 20 percent downpayment ($200,000), they need to borrow $800,000 in mortgage. Based of these facts, the family requires 140,000 in annual income to qualify. Based on the new regulation, the same family will need 180,000 in annual income in order to qualify. In other words, now they need higher income, or much more downpayment to qualify for the same $800,000 mortgage amount. This new stress test won’t apply to people renewing their uninsured mortgage. Canada’s Office of the Superintendent of Financial Institutions (OSFI) will also require lenders to enhance their loan-to-value (LTV) limits and restrict certain lending arrangements designed to circumvent LTV limits.

While the impacts of these new qualification requirements are unclear, Economic analysis from the BC Real Estate Association (BCREA) anticipates: “The impact of the new stress test requirement will be to lower the purchasing power of households by up to 20 per cent. Like past tightening of mortgage regulations, we anticipate that the market impact will be sharp but temporary. In the past, we’ve seen home sales decline in the three to nine months following the implementation of tighter mortgage lending standards, with the severity of the impact fading within one year. However, these new regulations impact a larger pool of mortgages and so the impact could be more significant than in the past,” said Cameron Muir, BCREA chief economist.

Dog Porter, BMO financial group chief economist, predicts that expended stress testing of mortgages will have a “significant dampening effect” on the housing market. The main market it could hit hardest is the “move-up” home buyers. The new announcement could also slow interest rate increases next year if the bank of Canada pauses to assess the impact of new borrowing rules, he said.