Latest stress test changes reduce buying power, impact first-time and move-up home purchasers in Calgary

Recent changes to the mortgage stress test designed to cool down hot housing markets across the country may make it more difficult for some Albertans to purchase a home.

Since the changes came into effect on June 1, the minimum qualifying rate for uninsured mortgages (i.e., residential mortgages with a down payment of 20 per cent or more) has been the greater of the mortgage contract rate plus two per cent or 5.25 per cent, an increase from the previous qualifying rate of 4.79 per cent.

Mary Swaffield, CEO of the Alberta Mortgage Brokers Association, said the association recognizes the need to react quickly and ensure there are controls in place for the market.

"This unfortunately really stressed out a lot of middle-class Canadians and those first-time homebuyers. It's just going to be that much harder for them to qualify for that first-time home," she said. "Let's not forget that high prices aren't the fault of the purchaser."

She adds the change is expected to reduce buying power by four to 4.5 per cent, "so if you look at qualifying for a $442,000 home now, you're only qualifying for $422,000."

Personal finance columnist and real estate expert Romana King says the goal of the more-stringent stress test is to cool off high-priced markets, such as Toronto and Vancouver, and this latest round of changes is a response to the growing share of uninsured mortgages. She cites Canada Mortgage and Housing Corp. data, which shows 54 per cent of mortgages nationwide were insured in 2016. That number fell to 40 per cent in 2019 and to 37 per cent in 2020.

"The increase in mortgage stress rates will also disproportionately impact move-up buyers – homeowners with equity in their current property that choose to sell and move up to a larger, presumably more expensive home and adding first-time buyer inventory to the market," she said.

"This will happen since most of these buyers will put down more than 20 per cent of their next home purchase as a down payment, meaning they will require an uninsured mortgage and, as a result, will be stress tested at the higher rate."

King also echoes Swaffield, noting the higher qualifying rate "will result in an approximate erosion of purchasing power of 4.5 per cent."