Who is Canada’s mortgage stress test stressing? Toronto Sun – February 19, 2019
A Response from The Parkhill Team
Getting a mortgage is tough with the rising price of houses. Over the past year-and-a-half, buyers are feeling the pressure thanks to the “mortgage stress test” federal guidelines that came into effect January 1, 2018.
Broadly speaking, the rules mean you may not be able to borrow as much as you would have prior to 2018. While borrowers might be ok with making their mortgage payments at a 3.5% interest rate, the new guidelines want to ensure you can continue to make your mortgage payments as the interest rates rise. So, you now have to qualify to afford an interest rate up to 2% higher than the current posted rates. This means you qualify to borrow less overall, likely settling for a less-expensive home. If you’re renewing your mortgage, you may be forced to stay with your current lender.
The mortgage stress test is having the greatest impact on first-time buyers and those in their first home considering an upgrade. With escalating home prices and a stress test impacting typical borrowing power by about 20%, buyers are struggling.
Where the Toronto Sun article asks, who the stress-test is really stressing?, It seems to us that its stressing out the new condominium developers throughout the GTA. The author “questions the logic of applying such a stringent test to first-time new-construction condominium buyers, since new condos in Toronto and the GTA are the most affordable arm of the market and potential purchasers are failing stress tests.”
Although this is obviously an issue in Toronto, considering new condo construction had a quick rise and fall. In 2018, 15 Condo development projects had more than 4,500 unit cancellations, dropping 43% in sales, and increasing 18% in inventory. (Toronto Star, Jan 4, 2019) Units under $800,000 are in demand.
But in Peterborough, the condo buyers are not first timers, they’re mostly seniors. The market segment is small, and the inventory is low. Peterborough does not have a focus on condos as market-entry dwellings. Condo purchasers here are downsizing seniors, nudging out the first-time buyers with their stronger purchasing power. And although new home construction in Peterborough will focus on increasing the ratio of towns and semi’s being built, in our experience first-time buyers are still searching for single, detached resale houses.
We have been approached by many first-time home buyers over the past year, and they’re either still living at home with mom and dad, or renting. For the former, opportunities to save for a down payment are obviously much greater. They tend to have more than the required 5% down payment and a bigger budget. For the renters, the struggle is real. With rental vacancy rates at a three-decade low of ≤1.5% and average rental rates increasing by 7.6% (CMHC, 2018) saving for a down payment under those conditions may make home ownership seem like a distant dream.
The Parkhill Team has found success in even the toughest of times. We have been able to secure quality homes for our first time buyers, even in competitions, and we credit our clients success on their being proactive. The sooner you discuss your financial picture with a Mortgage professional, the better. Don’t assume your $10,000 saved will get you a house. You need to view the bigger picture in relation to your employment, your debt and your credit. Speak to the lenders at your home Bank, a Mortgage Broker, and a local credit union. If there was ever a time to shop around, this would be it.
If not Condos – what are first time Buyers in Peterborough buying?
Our first-timers have mostly bought in Peterborough’s south, north and east ends where homes are more affordable, and in family-friendly neighbourhoods. The west end is Peterborough’s most expensive community, so detached homes are less achievable. If it’s got to be the west end, small townhouses are the best prices, around $410,000 (2019).
But we have also noticed a rise in Central’s sales, growing 15% in 2018 – the largest increase in the city. Many streets of the city are being converted to young family neighbourhoods, where homeowners are staying a bit longer, and renovating a bit more to ensure when it is time to sell, they can achieve the highest rate of return on their investment. And we’re more than ok with that. Many streets have achieved a major lift in curb appeal from first time buyers rolling up their sleeves.
At the end of the day, the mortgage stress-test is what it is and we hope there are a few changes on the horizon. However, there are things you as a buyer can do to help make your dream a reality. Work with an agent that actually likes working with first-time buyers, and will educate you throughout the process. The goal is to learn from your agent, so put your adulting pants on and get in touch with the Parkhill Team of Realtors.
We host seminars on First time home buying for community members looking to enter the real estate market. The seminars are a no-cost, no-obligation way for you to educate yourself about the following topics in a relaxed atmosphere:
- Intro to The Current Real Estate Market
- Mortgages, how they work, how to qualify
- How to build your team – which professionals you’ll need to enlist to make the purchase
- How the process of buying works
- What you didn’t know, but should know before buying your first house
Send us an email or fill out the form on the buyer page of our website to inquire about the next scheduled group seminar held at the Bowes and Cocks Brokerage office in Peterborough, or request a casual, one-on-one session scheduled at your convenience.