Back in 2017 Canadian households were at record high debt levels. The Bank of Canada (BoC) announced its intention to continue raising interest rates. And housing prices had been going up and up with no end in sight. Too many Canadians were drowning in debt and the OSFI (Office of the Superintendent of Financial Institutions) decided to put up a fence around the pool.

The Stress Test

The purpose of the stress test was to make sure that Canadian potential “swimmers” (home owners) would be able to swim through the debt they accumulated, as well as probable hikes in interest rates. The fence was meant to keep out any swimmers who couldn’t handle rising waters. It worked. But in the opinion of some, it worked a little too well. 10% of home owners who had previously been able to get approved for a mortgage no longer can. Many of these are potential first-time home owners. This has a big impact on all the other sellers in the market, because they rely on a domino effect. In order for higher tiers in the housing market to sell their homes, they need someone in a lower tier to buy them. In essence, first-time home seekers are sitting at the top of the slide waiting for the life guard (or the mortgage lenders) to give them permission to get in the pool, and all the other home buyers and sellers are waiting in line behind them. But because of the new OSFI regulations, the life guard can’t blow the whistle.

What to do

If you don’t manage to pass the stress test it can feel like your whole life has been put on pause, with no idea when someone is going to come and hit play. Whether you are trying to make the leap into first-time home ownership, planning on making a homing change in order to accommodate new life circumstances, or looking for a place that will better showcase your exotic fish collection (we’d love to see it, invite us over some time), being denied access to a mortgage can leave you feeling up the creek without a paddle. Our suggestion is to look for a cosigner. It may not be ideal and it may even feel a bit awkward, but if it works it works! Wouldn’t you rather be in the pool with a partner rather than left to side on the sidelines? Plus, Your Trusted Mortgage Broker can give you access to a lender who will only ask your cosigner to remain on the mortgage for one year. After that, he or she is allowed to get out of the pool and is absolved of any responsibility. Win win!

If you do manage to pass the stress test, congratulations! We have a suggestion that may suit your needs. If you are selling one home and moving on to the next, consider keeping the first home and using it as a rental after you’ve moved out (if you can still afford the new home.) The rental market is a whole different swimming pool with slides that are going going going. Those who are being denied mortgage approval are often looking into rentals instead. Now is an excellent time to cash in on this market.

To learn more about how the stress test may affect you, or to talk to a specialist about cosigners or turning your home into a rental, contact us today.