Mortgage Stress Test Alterations Have Been Put On Hold

Many industries are having to deal with alterations to their product or service due to the effect of COVID-19, and real estate is no exception to this. The lessening of sold homes is not strictly a North American thing, throughout the globe people are focused on the essentials more than ever. The buying of property has greatly diminished over the last few weeks and this trend will continue until the founded concerns of the Coronavirus have depleted and the original habits of the nation have gone back to normal.

Last week we reported that changes to the mortgage stress test were to be altered, and it has been announced that they will be put on hold indefinitely. The Office of the Superintendent of Financial Institutions (OFSI) made the decision soon after they declared their changes which were planned to be put in place ahead of even the April 6 proposal. This new qualifying rate to the stress test was supposed to be for insured mortgages with a less than 20% down payment, which would have equated to the weekly average of a 5-year fixed rate, with an additional 2% added on. This was changed from the Bank of Canada’s average posted rate or 2% higher than the user’s monthly rate, depending on whichever is higher. This is determined so that the applicant can comfortably pay the mortgage for the entirety of it’s duration. Many mortgage lenders have not adjusted their rates yet due to so much changing, but this will be addressed soon.

The OFSI will also lower the Domestic Stability Buffer effective immediately. Risk weighted assets will now drop by 1.25%, when a recent increase had already been planned before the virus. This will increase the lending capacity of Canadian banks up to $300 billion, in order to aid citizens. An additional support of credit will better stabilize the economy in these uncertain times. The government realizes that this is such a stressful time for property owners, and they have shown strong diligence in providing aid to curb the large degree of doubt generated by this pandemic.

A concern that is on the mind of so many owners is how the virus is going to influence the value of properties. No one has the answer to this question, particularly because we have nothing similar in our recent history to draw the data from. It’s going to be in one’s best interest to hold on to the property. Values will rise and fall as they always trend upwards. If your property has decreased in value, it’s best to just wait it out. Increases aren’t specific to just Toronto; thanks to worldwide population growth, it’s everywhere. If you have any concerns, just realize that patience is all that you require while everything settles down.