Photo: James Bombales

The new year has brought with it new policy — a mortgage stress test is now in effect, making it harder for uninsured borrowers to qualify for a mortgage. While plenty of industry experts have said the test will keep Canadians out of the housing market, one bank thinks the policy is actually a move in the right direction.

According to a new note from TD economists Beata Caranci and Fotios Raptis, the stress test, combined with higher interest rates, should keep the housing market balanced in 2018.

“Higher rates should cool demand for housing,” they write, in a note released today. “We anticipate that the gradual pace of policy normalization is likely to do what policy maker intend: temper house price growth, slow asset price growth, and keep consumer spending and debt in check.”

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The test requires all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract mortgage rate plus an additional two per cent. That’s in addition to rising interest rates — the Bank of Canada hiked the overnight rate by 50 basis points last year, up from its historically low 0.5 per cent. This year, it’s predicted to continue the trend.

Other economists have noted that higher interest rates in combination with the new mortgage rules will continue to cool Canada’s housing market.

“We expect [the policy changes] will drive the next phase of the housing market correction in 2018,” RBC’s economics team wrote in a recent note.

Although the new rules might cool the housing market for the better, they won’t necessarily deter all would-be homeowners from entering the market. According to Zoocasa managing editor Penelope Graham, some Canadians may consider the alternative lending market instead.

“The mortgage rule changes apply to the big banks, but not to alternative lenders, so it’s likely that we’ll see a spike in alternative mortgages in the new year,” she told BuzzBuzzNews.

“Canadians are very resilient when it comes to homeownership,” she says. “They’ll find a way to get into the market if they want to.”

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