The mortgage stress test has helped to create a “well-balanced territory” in Canada’s housing market, according to Royal Bank of Canada CEO, Dave McKay.
McKay, who heads the largest mortgage lender in the country, made those remarks in an interview with BNN Bloomberg on Thursday, in which he commented on the effects the stress test has had on housing and why it might need to be tweaked in the future.
“The housing prices and resale-market corrections are generally healthy,” he said. “I wouldn’t want to see some markets cool a lot more than they have, but we needed to slow this down through policy.”
The stress test is designed to test whether homebuyers can handle a mortgage with an interest rate of two percentage points higher than the one their bank offers them, or at the Bank of Canada’s five-year posted mortgage rate — whichever is higher.
That got slightly easier last week, when the Bank of Canada lowered its qualifying interest rate for the mortgage stress test to 5.19% from 5.34%, marking the first time the Bank of Canada has lowered the rate since 2016.
Still, McKay didn’t shy away from offering his thoughts on the fact that the stress test might need to be tweaked in order to stimulate growth in the market.
“It’s taken a number of buyers out of the market temporarily as they build a greater down payment for that mortgage, it’s cooled housing prices, but it’s all about balancing supply demand and, like every policy, it’s not static,” said McKay. “Maybe you have to re-look at parts of it and tweak it.”
McKay’s remarks will surely be incorporated into the now-months-long debate amongst groups like the IMF, OREA, CMHC and various real estate boards about whether or not the stress test rules should be eased — and if it is, what repercussions that might have.
The difference of opinion on the matter has gotten quite heated at times.
In May, CMHC’s president, Evan Siddall, took a harsh tone when he penned a strongly worded letter to the Standing Committee on Finance, saying that softening the mortgage lending rules represents a “reckless myopia.”