BOC rate cut still stress -inducing

August 1, 2019

The Bank of Canada (BOC) has lowered its five-year qualifying mortgage rate from 5.34 per cent to 5.19 per cent, the first downward move in three years, but the change will have little effect on those trying to qualify under the federal mortgage stress test.
The mortgage stress requires that mortgage applicants at federally-registered lenders must qualify at the BOC’s five-year posted rate, or their contract rate plus two per cent, whichever is higher.
With average five-year mortgages now under 3 per cent, most fixed-rate mortgage applicants still have to qualify at the new BOC rate of 5.19 per cent.
The BOC rate reduction was welcomed by the home building and real estate industry as a first step.
The Canadian Home Builders’ Association had repeatedly called for an easement or elimination of the mortgage stress test, noting a 32 per cent reduction in first-time homebuyers in the first year the stress test was in effect.
A mortgage applicant with an annual household income of $100,000, a 20 per cent down payment and a five-year fixed mortgage at a contract rate of 2.7 per cent over 25 years would have qualified for a home priced at $589,000 at the previous benchmark rate of 5.34 per cent, according to Ratehub calculations.
With the new qualifying rate of 5.19 per cent, the applicant can now afford a home priced at $597,000, modest increase of $8,000.
The BOC last lowered its five-year fixed mortgage rate in September 2016, when the rate fell from 4.74 per cent to 4.64 per cent. Since then, the rate has been increasing. The real estate industry has blamed much of the recent decline in home sales on the qualifying requirements of the mortgage stress test.