The introduction of the Canadian Mortgage Stress Test has left Homebuyers with lesser buying power. Introduced on June 1, this action was taken against the boiling housing markets of Canada as a possible solution to contribute to the cooldown of the market. 

So, if you have a mortgage or are planning to get one, the stress test applies toR you. While the pandemic has created a frenzy in Canada's housing market, this stress update is expected to cut homebuyer's budget by about 5 per cent, says Lara Boujikian, Real Estate Broker.

So, what is the Canadian Mortgage Stress Test exactly? 

Firstly it's not really a test but a more stringent set of rules that the banks must now use to determine if buyers are qualifying for a mortgage or not. This generally happens in a complicated and sometimes volatile housing market. Lara further explains how affordability has been an issue with the Canadian housing market and the cooling measures will only be providing temporary relief. In fact, being an industry insider, Lara says it might have some unintended consequences that might exacerbate the current predicament. 

How does it affect the buying power?

The idea to implement stringent stress tests will dwindle borrowers' theoretical buying power. People with high debt-to-income ratios are going to be majorly impacted by this. Given the small increase in the qualifying rate, industry insiders don't see any significant long-term impacts of this on the housing industry. In the short run, it might cool down the hot market activities for some time, but the affordability challenges seen in many Canadian cities will remain. 

The impact on first-time borrowers

First-time borrowers are the ones who purchase at the maximum possible affordability. This predicament can be a lot more difficult for first time home buyers where they might have to rethink their budgets and what they are spending in their homes. This rate will lower the average household's buying power considering the minimum qualifying rate of 5.25%. That means if you qualify for a $500000 mortgage today, that amount is reduced to around $479000 on June 1. Lara says, "This change is not as significant as the ones in earlier and so there might not be a big shift." The purchasing power reduction is not for all buyers, only for those who are at the max, at the margins for the qualifying process. 

There's no special way of side-stepping the stress test. "Home-buyers can take necessary steps to increase home affordability, save more, clear off some debts, get a co-signer, involve some experts," says Lara.

Considering the unprecedented activities in the Canadian real estate market, i.e from flickering prices to challenges in housing affordability, there are undoubtedly some problems that first time home buyers will be facing. While the pandemic has substantially changed the markets in a matter of time, the Canadian housing markets were brewing long before the outbreak.

Lara Boujikian has been assisting her clients amidst the crisis of affordability, such stringent norms and increasing demands of housing.  The unclear scenario keeps the Canadian home buyers stressed about the coming markets and Lara's ceaseless commitment to the industry have engendered some long-term solutions concerning listing price thresholds, the problems that may arise when purchasing new homes and processes of buying and selling transactions in the industry.