It’s official. As of New Year’s Day, 2018 all real-estate purchasers requiring a mortgage backed by Canadian banks will undergo an affordability “stress test,” according to the Office of the Superintendent of Financial Institutions (OSFI).

 

Starting last year buyers who applied for a mortgage while offering less than 20% of the purchase price as a down payment were required to undergo a federally-mandated interest rate stress test, whereby their ability to carry a mortgage would be tested at an interest rate two per cent above the rate their lender negotiated or at the five-year average posted rate, whichever was higher.

 

The intended outcome of the stress test ensures that should interest rates rise, home buyers have the sufficient income to carry the added financial burden.

 

The rules now dictate all buyers securing a mortgage through a Canadian bank, which abide by the OSFI’s regulations, will undergo the stress test. Provincial credit unions, however, are expected to follow through with a similar requirement although the date by which they mandate blanket stress tests is anticipated approximately 30-to-90 days into 2018.

 

How such a stress test will affect housing prices across the country, and particularly in regions where real-estate values have quickly appreciated, remains to be seen. TD Bank economist Brian DePratto, speaking to the CBC, believes home sales are expected to fall by five-to-ten per cent as a result of the new rule. A mini-rush of buying activity could also materialize this fall as buyers attempt to secure stress-test-free mortgages.

 

Mortgage renewals, however, will not be impacted by the new stress test. The measure only applies to new property purchases. C