The new mortgage stress test practiced in Ottawa, Canada is seen as the main motive as to why mortgages declined since 2018. Following this news, CIBC states that the country should review its stress tests to see how these factor in the overall unregulated spending and lending in the housing market.
Bloomberg reports that the Canadian Imperial Bank of Commerce (CIBC) is calling upon the government to help re-evaluate the current mortgage rules in place. According to CIBC, this new landscape and climate have been pushing individuals to work with uncontrolled lenders, thus potentially harming the housing market even more.
B-20 and What it Means
B-20 is a type of mortgage stress test that gauges the capacity of Canadians to purchase a home within their means. Under this scheme, interested applicants and buyers would have to prove that their finances can cover their intended home loans as well as the interest rates that come with it. Huffington Post states that homebuyers need to pass new rules in order for them to receive loans from a federally regulated lender.
Global News states that these rules intend to put up a 20 percent down payment would still be facing the test.
B-20 and Its Effect on the Housing Market
Since being put into place, the new rules have put a strain over the housing market. According to CBC, mortgages fell by a whopping 8 percent in 2018 alone, amounting to around $25 billion.
Following this new low, Benjamin Tal, the deputy chief economist hailing from the Canadian Imperial Bank of Commerce, urges the federal government to reassess the tests they have put in place. While the current rules aim to address the debt of homebuyers, Tal states that this does not consider the rising interest rates, thus pushing Canadians to opt for alternative lending schemes.
Bloomberg reports that Tal supports a “more flexible benchmark” that would allow more awareness and considerations regarding numerous factors, including income and the like.