Changes to mortgage stress test rules good news for young home buyers, says P.E.I. broker

A P.E.I. mortgage broker says changes to Canada's stress test rules should open up the housing market to more young people. 

The stress test was brought in two years ago to ensure potential home buyers would still be able to make their payments if their mortgage rate increased. 

To qualify for a mortgage loan, buyers have to be able to afford payments at a rate two per cent higher than the Bank of Canada's average five-year-rate, which comes to about 5.19 per cent. 

But starting April 6, lenders will instead use the average industry rate in that calculation.

That rate is currently more than a half a percentage point lower than the banks. So on a $200,000 mortgage, buyers would need to afford a payment of about $1,128 a month instead of $1,184.

Broker Paul Trainor says that wiggle room will make a difference.  

"It will make it easier for people, especially younger people, to afford their first home," he said.

"Any person with a student loan debt, which seems to be the big problem with the stress test, they'll be the major beneficiaries because they've got that extra debt that, as we get older, we don't have the student loan debt. But that first-time home buyer has that. And when you make it harder, obviously they can't get into their first home."

Trainor said under the arrangement, buyers will be able to qualify for more expensive homes as well. 

The downside for buyers, he said, is that could cause home prices to increase. "You're going to have more price increases because of that demand."

More P.E.I. news