Originally I was 100% in favour of the stress test and I still am to a certain degree. Maybe 2% on-top of a lenders mortgage rate is too much for a first time home buyer! I have a number of buyers who are losing out because of this stress test and climbing prices. Normally I would be able to find them a first home but this has become a challenge and a disappointment for my buyers! Considering downtown condo prices have increased 12.4% year over year, the stress test is adding pressure to the low $500,000 market. The downtown condo market on average is over $1000 per square foot.
You may ask what is a stress test? The federal government is concerned that raising interest rates will catch property owners with mortgages off-guard when they renew their mortgages at higher rates so they introduced legislation that states new mortgages or existing mortgages being transferred to a new lender will have to undergo a stress test of an additional 2% on top of their current lender mortgage rate or be stress tested at Bank of Canada’s five-year benchmark rate (currently 5.34%). This reduces their affordability as property prices grow per square foot.
As a dedicated realtor I truly believe I will find all my first time buyers their first home but these are the realities of today’s Toronto market. Toronto is a great city and this demand reflects the desire to live here.