Prime Minister Justin Trudeau has asked Finance Minister Bill Morneau to consider changes to the mortgage stress test that Canada’s real estate industry has criticized for being a drag on the housing market.
"A mandate letter sent by Trudeau to Morneau — which was released Friday [13 December 2019], along with letters sent to other ministers — says the finance minister will “review and consider recommendations from financial agencies related to making the borrower stress test more dynamic.”
Canada has stress tests in place for home loans that are insured against the borrower defaulting on their payments and those that are not. The insured test was brought in by the finance ministry, while the uninsured one was instituted by a federal banking regulator, the Office of the Superintendent of Financial Institutions.
It was not specified which test the mandate letter refers to, but both can require borrowers to qualify for loans at higher rates than the one on their contract, as it is intended to ensure buyers can meet their obligations to lenders if interest rates rise or if a person’s income is lost or reduced, among other things.
The implementation of the uninsured test, though, particularly irked the real estate industry. One criticism of the measure is that it was not adjusted following a rise in interest rates, which is also putting pressure on borrowers.