A new law will govern mortgages in the coming year that may have an even more significant impact that past adjustments. The regulation, which introduces a new stress test for uninsured mortgages, will impact residential real estate buyers and sellers in Alberta. It is being introduced in order to protect buyers from purchasing properties that they may not be able to pay for in the long-term.
The stress test will require a mortgage borrower to qualify at either the five-year benchmark rate from the Bank of Canada or at two per cent over the contracted mortgage rate, whichever is higher. Regulators believe that previous economic crashes related to residential real estate, such as the 2007 United State recession, was due in part to overly lax mortgage lending. In hot real estate markets like Vancouver and Toronto, there is a concern that mortgage debt loads could be unmanageable.
Alberta is currently coming out of a recession, and the regulators wish to take steps to prevent mortgage debt that its population cannot afford. There is speculation that there may be a buying frenzy near the end of the year before the regulation solidifies. However, some experts say that banks are already policing mortgages in line with these regulations.
The impact of these new rules on the Alberta housing market remains to be seen. The qualifying income for those purchasing a $500,000 home may jump by over $16,000 under the new rules. Regardless, those looking to purchase or sell a home should speak to a lawyer about how all Alberta laws involving residential real estate may impact their transaction, including this one.
Source: Calgary Herald, “Uninsured mortgages to require more income to qualify“, Josh Skapin, Nov. 17, 2017