The stress tests on mortgages, introduced last fall by the federal government, is pushing some homebuyers into uninsured lending options.
That’s the warning from Mortgage Professionals Canada which says that while the stress tests are a good idea they are based on a 4.64 per cent rate, far higher than the market rates.
"We agree with a mortgage stress test but it should be reflective of more realistic future interest rates so Canadians can continue to have access to affordable homeownership," Paul Taylor, President and CEO of Mortgage Professionals Canada. "Modifying the criterial has a more realistic chance of improving homeownership for consumers."
He added that the tests mean that some consumers are opting for loans which are uninsured and often at higher interest rates, increasing the debt load and risk for some of the most vulnerable borrowers.
In a survey, MPC found that 48 per cent of borrowers would have a downpayment below 20 per cent, triggering a stress test; of these a fifth would not be able to secure required financing.
Those consumers would then either opt for a lowest priced home, delay their purchase or increase their downpayment from the RRSP (31 per cent), get help from family/friends (30 per cent) or financial institutions (16 per cent).
The association has also polled consumers on their view of the current housing market and found measured optimism with most considering mortgages to be ‘good debt’.
"Even in the pressured housing markets of Toronto and Vancouver, personal circumstances, rather than a sense of urgency, are influencing purchasing decisions. The significant surge in demand for new homes in Toronto in the early spring was an aberration. Fortunately, it was short lived," said Taylor.
The poll shows that first-time buyers are aware of the need to ensure a buffer in their finances to cope with future expenses.