It’s widely acknowledged that the mortgage stress test federal policy makers introduced 16 months ago has dampened home sales and prices, as some buyers aren’t qualifying for loans they’d have otherwise obtained.

But to what extent is the market being impacted?

According to a new report from TD, if the stress test for uninsured mortgages were scrapped today, by the end of 2020 home prices in Canada would have increased 6 percent.
With the stress test in place as it currently exists — uninsured mortgage applicants must qualify at a rate 200 basis points higher than what their lender is offering — TD anticipates home prices will increase by 4 percent.

Two percentage points might not sound like a lot, but it translates to a difference of tens of thousands of dollars.

“This would amount to about a 32k difference in the average Canadian home price relative to our forecast, with disproportional impacts on the GVA and GTA markets,” write TD economists Rishi Sondhi, Ksenia Bushmeneva and Derek Burleton.

Stress testing isn’t anything new to Canada, as anyone with an insured mortgage knows.
Borrowers who aren’t able to come up with a downpayment of at least 20 percent require mortgage insurance, and insured mortgage applicants were already subject to stress testing prior to the January 2018 decision to roll it out to the uninsured segment.

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