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Buying a home in the GTA is a stressful process that can be rife with challenges and obstacles. From start to finish, the process can include saving for a down payment, reviewing lenders, filling out the extensive application, awaiting approval, dealing with insurance providers and then shopping for your dream house.

The Federal Government has added a stress test to the mix, complicating matters somewhat for already nervous borrowers.

Should the stress test be causing you stress? Or will it prove to be beneficial for borrowers, lenders and the GTA housing market?

The Stress Test

A stress test means that applicants now must prove they could withstand a substantially higher interest rate if this occurs. It’s a simple formula designed to protect borrowers and lenders form loan defaults and to stabilize the housing market.

Unfortunately, this has slowed or stopped the dream of homeownership for many Canadians. People must not only be pre-approved for a mortgage, their application must overcome an additional challenge in the form of a stress test.

The stress test isn’t all negative, though. There should be a lot of positive outcomes for homeowners.   

Benefit to Canadians

This regulation will help ensure that more Canadians are financially prepared for the responsibility of homeownership. The real benefit will come from a housing market with more pricing options and less bidding wars because the pool of buyers will be smaller and more qualified.

A healthier housing market with more entry points for Canadians will be invaluable to the economy and the financial wellbeing of homeowners. 

Protection for Borrowers and Lenders

The stress test should protect borrowers and lenders from defaults and situations that could financially harm either side. This was a necessary step to make sure that borrowers are vetted prior to approval and that lenders can provide a loan with some reassurance that market volatility will not be a hindrance.

Don’t let the stress test stress you out. Try viewing it through a positive lens as it can help all parties. Contact us to learn more or to start the mortgage pre-approval process.

Stress testing is a risk management tool that tests the ability of borrowers to withstand an interest rate hike. When the Federal Government implemented a stress test in 2017, people started searching for alternative methods to secure a mortgage and different ways to enter the housing market.

For a mortgage application to be approved, the applicant must be able to carry a loan with an interest rate around 5%, even though the actual rate will be lower. This will reportedly block 50,000 Canadians from homeownership and has forced many to become more creative and prudent.

Alternative Lenders

In their pursuit of homeownership, people have been ignoring banks in favour of alternative lenders whose approval process is less stringent and they are not as tied to the Bank of Canada. There’s a lot of value to non-traditional lenders.

People must cast a wider net as they try to secure a loan. The strategy is to meet with different lenders to determine who has the most favourable terms and offers you the best chance at approval. They can offer better rates, and in some instances, are more open to negotiating terms.

Other Options

Mortgage stress testing isn’t going away, in fact, the Government and the Bank of Canada might implement more regulations to stabilize the market and prevent borrowers from defaulting on loans. To counteract this, borrowers can take certain measures to make their mortgage applications more attractive.

A higher down payment and paying down your debt can help your application withstand a stress test. Additional assets can also help. If you are looking to get a mortgage for an investment property, then partner with an experienced person who has good credit and can increase the down payment. Granted, some applications with big down payments will be rejected but it can still make an application more appealing in the eyes of lenders.

There are no tricks to beating the stress test or getting approved for a mortgage in 2018. For those looking to sell their home or enter the market, you need to review your situation with a mortgage specialist and determine if now is the right time. The other option is to simply wait a bit so that you can decrease your debt, increase your salary and assets and present a better application.

Recently, the U.S. imposed tariffs on metals like steel and aluminum, suffering severe backlash from other nations, many of which are allies. This has caused a ripple effect that has undermined the stock market and could jeopardize the international trading system.

Canada, the largest supplier of steel and aluminum to the U.S., is one of the countries that must grapple with the actions and decisions of its most important trading partner. The fallout could be immense with the housing market and homebuyers feeling the repercussions and mounting some form of retaliation.

The New Tariffs 

The Trump administration has only released small details about the new tariffs but it’s believed that the U.S. will impose a 25% tariff on steel and a 10% tariff on aluminum. This news caused the Canadian dollar to plunge and the stock market to dip.

The U.S. enacted new tariffs under a stipulation that allows the president to revise tariffs if it is in the name of national security. For some reason, this little-known trade law was put into practice. These tariffs were controversial to U.S. trade partners but also had its detractors in the GOP and on Capitol Hill. 

The Construction Industry and the Housing market

The supply chain and cost of materials will be impacted by these tariffs, which will make construction projects prohibitively more expensive. Any price increase or inflated cost will most likely trickle down to homebuyers. This can raise housing prices which could price some prospective buyers out of the market. It could be profitable for sellers, heat the rental market or it could lower supply for a period. Only time will tell and it is also dependent on what counter-measures Canada plans to put into place.

With the right plan in place, Canada could strengthen other trade relations or have the U.S. reconsider, erasing any negative impact on the housing market or the construction industry.

Canada and the U.S. have an integrated economy so not only does this have the potential to hurt both countries economically, it can strain the diplomatic relationships in ways beyond trade.

Are you thinking about selling your house? If so, you are probably hearing advice telling you to wait until the spring or until the market turns around or to beware of new Government policies which will make it harder. Deciding to sell is a big decision and there are a lot of factors to weigh.

What market factors should sellers review for before listing?

Don’t Rule out the Winter

Yes, the GTA real estate market does heat up in the spring but there is much more inventory. This spring and summer market is more competitive and you might even find that many of your neighbours also waited until the snow melted to list their home.

The winter will give you a smaller pool of buyers but those buyers will have fewer options. Be sure to invest the time or money to shovel your driveway and to winterproof your windows, if listing during the colder months.

The Current Market

The best indicator as to whether you should sell or not is the market. The issue is that the market is open to interpretation and can be difficult to forecast. Sellers need to look at the market locally and review recent sales of similar properties to determine if the circumstances lend themselves to a larger pool of buyers and a potential bidding war.

The best strategy is to speak with an agent who has sold multiple homes in your area within the last 12 months. They will have the best insight as to whether you should list or wait.

Policies and Interest Rates 

How the Federal, Provincial and Municipal Governments in addition to The Bank of Canada intervene in the housing market can have an enormous impact on the sale of your home. Whether it’s the affordable housing act or an interest rate increase or a stress test, measures are often put in place to cool or warm a market.

You need to be aware of the overall state of the market to make an informed choice about if the time is right to sell your house.