Real estate markets are driven by credit, so when the government starts seriously constricting credit, it can have a large impact. As expected, the OSFI has announced the changes to the B-20 rules I covered earlier this month. Stress test for all mortgages (from federally regulated lenders) at 2% higher than existing rates and cracking down on creative financing intended to circumvent these rules.
The rules come into effect January 1, 2018.
Last time we looked at at how minimum incomes to qualify for a typical single family house or condo will have to increase under a stress test. This time let’s see how that maps to Victoria incomes. In 2015, our income distribution was like this:
Another way to visualize this is by looking at what percentage of households are above a certain income level.
Now if we assume 20% down (the optimal down payment in many cases) on the median property, what does that do to the number of people that could qualify for the mortgage? Note that this is assuming good credit and no significant other debts, so the actual qualifying incomes could be higher.
For SFH and condos then, the stress test could sideline around 7% of all Victoria households at current prices. Of course, the buyers on the edge with additional capital can put more down to pass the stress test, and shadow lenders will take up some of the slack, but it could be a significant chunk out of the buying pool. Definitely the biggest change we’ve seen to credit availability in years.