Stress test hasn't changed

Canada Mortgage and Housing Corporation (CMHC) recently reversed a policy decision implemented in July 2020. We’ve had a flood of calls asking if this means that the stress test is gone or has changed.

The short answer is that these changes do not include changes to the stress test.

According to a press release on July 5, 2021, CMHC has reviewed and reversed temporary policy changes that were implemented in July 2020 to protect consumers from the uncertainty surrounding the pandemic and slow the housing market.

The changes introduced last year included:

Reduced debt servicing guidelines from a maximum of 39 per cent Gross Debt Service Ratio (GDS) and Total Service Ratio (TDS) of 44 per cent to 35 per cent and 42 per cent respectively
A minimum credit score of 680 for borrowers

At first glance this might not have seemed like such a big deal. There are three companies in Canada that provide default insurance to lenders: CMHC, Sagen (formerly Genworth), and Canada Guaranty.

Certain areas were affected by these changes more than others. CMHC has several niche products that the others don’t provide. As an example, CMHC is the only insurer that provides default insurance for homes on First Nations leasehold property.

I am working with one amazing couple who lost out on a beautiful home in West Kelowna because of this. They would have been very near the top of their ratios at 38 per cent GDS and 39.5 TDS but did not qualify for the home they fell in love with as they were over the 35/42 CMHC guidelines.

This was really disappointing as these clients have worked incredibly hard to save their own down payment and are meticulous with how they manage their finances.

My speculation is that CMHC felt the other two insurers would follow suit and change their policies to match the changes rolled out last July.

Instead what happened is the other two kept their guidelines status quo. CMHC lost a significant amount of market share and this move did not seem to achieve the underlying goal of cooling a crazy housing market.

I was encouraged to see CMHC reconsider and revise these policy changes.

Changing gears a little – if you are in the process of purchasing a home now that fire season is here, please make sure you talk to your realtor and insurance provider about how fires in your area may affect your purchase.

One of the conditions every lender includes to your solicitor is confirmation of home insurance. Most insurance providers will not issue new policies if there is an active fire within 50 kilometers of the home, so do not leave purchasing your policy to the last minute.

Most purchase contracts now include a clause to allow for this situation, but better to be organized ahead of time and know what you are dealing with as opposed to finding out at the last minute that your purchase has to be pushed back.

Stay safe.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.