New mortgage stress test rules kick in today

New rules aimed at making it harder to get a mortgage take effect today, a move that is bound to have an impact on demand for homes in Canada.

Earlier this month, Ottawa announced the moves, which boil down to a stress test for all insured mortgage applications.

It consists of testing to determine if a borrower could afford to pay back a loan if interest rates go higher, so they judge the borrower against the five-year standard rate of 4.64 per cent for a five-year loan — even though many lenders are currently offering mortgages at far less than that.

• Average Canadian home increased in value by almost 10% in the year up to September

Previously, that test was only used on certain segments of the market. But starting now, it will be in place for any insured mortgage for a buyer putting down less than 20 per cent of the home up front.

The new mortgage rules are an attempt to rein in debt loads, which is likely to cool prices, too. By making it harder to get a mortgage, demand for housing becomes limited, which should cause prices to drop or at least not increase as quickly.

Mortgage brokers reported a flurry of borrowing last week as homebuyers tried to get in under the wire.

Toronto-based broker Marcus Tzaferis says he thinks the new rules will have a big impact on certain segments of the market, especially first-time buyers with small down payments. "I think that we will see first-time home buyers begin to get frustrated after the rule comes in," he said in an interview. "It's a pretty significant hit to how much people can afford — you're looking at 20 to 30 per cent reduction in the mortgage value that people take on."