Vancouver Townhouses: Reduced Mortgage Stress Test Means Greater Buying Power
If you’re planning to buy real estate in Vancouver, things just got a little bit easier. The interest rate used in Canada’s mortgage stress tests has fallen for the first time since 2016, which means it’s now slightly easier to become a homeowner.
“For the first time since the government implemented new stress test rules on Canadian home loans, the rate has been lowered, which means potential homebuyers can now be approved for a bigger mortgage,” explains Vancouver Townhouse realtor Ariane Benjamin.
In place since January 2018, the stress test means that before a lender can sign off on a loan, the borrower’s finances have to be tested at a rate higher than the actual mortgage rate. The idea is to save borrowers from biting off more than they can chew in case interest rates rise—all in all, not a bad idea.
The level of the stress is either two percent higher than the actual mortgage rate—or the average five-year posted rate at Canada’s big six, whichever is greater. The bank rate hasn’t changed since May 2018, when it rose to 5.34 percent. But earlier this week, it slid to 5.19 percent, marking the first decrease in almost three years.
“A lot of people have cited the stress test as a major factor in the cooling housing market,” says Ariane. “Because one of the results is that buyers needed more to buy less. The drop not only makes it easier to qualify—it gives the owners more purchasing power.”
Finance website Ratehub.ca calculated that the typical borrower can now afford about 1.4 percent more home than previously. Assuming a down payment of 20 percent, no other debts, and earnings of $100,000 a year, under the previous test level, homeowners would have qualified for a $589,000 mortgage. Today that would be $597,000, so the impact is tangible.
The stress test still makes it difficult for a new buyer to qualify, but there’s likely to be some impact,” says Ariane. “It’s not just about the stress test—both home prices and actual mortgage rates are coming down, and that will make it easier to buy a home.”
LOOKING TO BUY OR SELL A TOWNHOUSE IN 2019?
As an experienced townhouse realtor in Vancouver, Ariane Benjamin has been tracking and studying townhouse sales and neighbourhood trends for over 15 years. Her one-on-one approach to buying and selling emphasizes a customer-first attitude and allows her to deliver results and value. Call (604) 779-1500 to set up a complimentary consultation with Ariane today.