In its latest attempt to cool Canada’s blistering housing market, the federal government has announced a few changes in mortgage policy.
The biggest move will to be close a loophole that allows foreigners the right to buy a home in Canada and then sell that home for a tax-free gain.
The other big change will affect Canadian borrowers just as much as non-residents. Effective October 17, all insured mortgages must pass a stress test designed to prepare borrowers for higher interest rates.
Folks getting mortgages will now have to prove they can pay the posted five-year interest rate, which the Bank of Canada says is currently 4.64%. That’s a lot higher than mortgage rates currently, which are under 2.5% for a five-year fixed term for a well-qualified borrower.
This seemingly small change could have a big impact on buyers.
According to Ratehub, a mortgage comparison website, somebody with an income of $100,000 and $40,000 down qualified for a property worth more than $665,000 under the old rules. With the new rules in place, the same buyer would only qualify for a home worth slightly more than $505,000.
This will undoubtedly have an impact, especially in higher priced areas. It’ll be yet another stumbling block for folks struggling to buy in Canada’s most expensive markets. Only time will tell if this new move deflates the bubble as planned, or it backfires by making real estate all the more unobtainable for the average person.
