segment of BNN Bloomberg<\/a>, Toronto realtor John Pasalis voiced support for extended mortgage stress testing nearly a year to the day after the federal government introduced it.<\/p>\n\u201cThe stress tests are great,\u201d Pasalis says of the measure which requires mortgage applicants to qualify for their loans at a higher interest rate than they are signing on for.<\/p>\n
As he sees it, there\u2019s just one problem. \u201cThe problem is, it was probably too much, too quick.\u201d<\/p>\n\n
The new mortgage rules have come at a time when mortgage rates are on the rise. Pasalis, president of the Realosophy brokerage, notes how the Bank of Canada has hiked the overnight rate five times over the past six quarters. That, together with the stress testing, has added 300 basis points to the qualifying rate for homebuyers.<\/p>\n
Pasalis highlights how much the lending landscape in Canada has changed for borrowers over the past 10 years.<\/p>\n
\u201cPolicymakers thought extending credit to households was a great idea,\u201d says Pasalis, noting that a decade ago consumers had access to 40-year amortizations.<\/p>\n
Today, amortizations are capped at 25 years and a stress test has come with higher interest rates.<\/p>\n
\u201cI think it\u2019s a lot in a relatively short period of time, especially over the past 18 months, to introduce these measures, and I think you can\u2019t sort of shift the underlying philosophy of how you\u2019re lending to consumers significantly without there being consequences,\u201d says Pasalis.<\/p>\n
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