The stress test rate is about to fall for the second time in three months following cuts by Canada’s Big Six banks to their 5-year fixed posted rates.
Mortgage experts say the Bank of Canada will reduce the benchmark qualifying rate—a.k.a., “stress test rate”—from 4.94% to 4.79% this week.
National Bank of Canada cut its posted 5-year fixed rate by 15 bps on Monday, following similar cuts by BMO and CIBC over the weekend, while RBC and TD lowered their rates last week.
In May, similar big-bank posted rate reductions caused the qualifying rate to fall from its then-current level of 5.04%, since the rate is based on a mode average of the big banks’ 5-year fixed posted rate. That marked their first time since January 2018, when OSFI’s stress test was introduced, that the benchmark qualifying rate fell below 5%.
“It will make qualifying easier, or permit some people to borrow fractionally more,” Paul Taylor, President and CEO of Mortgage Professionals Canada, told the Globe & Mail.
Just how much more? Well, not a whole lot in the scheme of today’s average home prices.
Rob McLister, founder of RateSpy.com, calculated that a buyer earning $70,000 a year and purchasing with the minimum 5% down would be able to afford roughly $4,000 more home, or about 1.2%.
“That’s not much to get excited about, but on a market-wide basis, small buying power improvements are inflationary for home prices, other things equal,” he wrote.
At 4.79%, the benchmark qualifying rate will be just 15 bps above the all-time low of 4.64%, last seen in July 2017, McLister notes