Mortgage Professionals Canada (MPC) is joining the chorus of critics, calling on Ottawa to re-think the mortgage stress test.
The new rule came into effect in January 2018, to add stability to a housing market that saw prices go through the roof.
Under the new requirements, you need to prove that if interest rates rise sharply, you can still keep up with your mortgage payments. That means you have to qualify at an interest rate around two percentage points above what the lender is offering.
Real estate boards and realtors blame it for a sales slump in Canada’s in Toronto and Vancouver.
MPC calls the stress test “blunt instruments that are causing undue pressure to several regional economies across Canada, and as a result the economy as a whole.”
That doesn’t mean MPC wants it eliminated. Instead, they suggest some tweaks including lowering the qualifying rate because it doesn’t account for income growth over time.
“At two percentage points above the actual contracted rates, the stress tests on insured and uninsured mortgages are causing serious and undue negative impacts to the Canadian economy and to the housing market,” said Paul Taylor, president and CEO of Mortgage Professionals Canada.
“We advocate for prudent amendments to the current framework. This includes a stress test of 0.75 percentage points to account for higher income and reduced mortgage principal.”
MPC says the current framework has the potential to lead to recessions in some parts of the country.
Yahoo Finance Canada reached out to the regulator responsible for the stress test.
“Based on our observations, the B-20 revisions are having the desired effect of helping to keep Canada’s financial system strong and resilient.
“The safety and stability of federally regulated financial institutions is fundamental to the health of Canada’s financial system, and OSFI will continue to monitor the Canadian mortgage market closely.” said the Office of the Superintendent of Financial Institutions.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains