The maintenance of the stress test levels, which at current interest rates force some borrowers to qualify for rates above eight per cent, comes as the Bank of Canada is widely expected to be at or near the end of its aggressive rate hike cycle.
When setting rates, the regulator looks at the financial stability of banks, said Yalkin, more than any direct assessment of how the rates are affecting the ability of people to buy homes. Federal Finance Minister Chrystia Freeland said in a statement that maintaining the minimum rate supports prudent underwriting standards, and “builds in a buffer for homebuyers in case of changing economic or personal circumstances.”The emphasis on prudence comes as many economists expect some level of recession next year after the Bank of Canada made seven consecutive rate increases this year, bringing its key interest rate to 4.25 per cent in an effort to cool inflation by slowing the economy.
The stress test has however proved its worth, after many were calling it excessive last year, given how quickly rates have risen, said Kavcic.