Finance Minister Bill Morneau Instructed to Review the Mortgage Stress Test

Prime Minister Justin Trudeau has asked Finance Minister Bill Morneau to consider changes to the mortgage stress test. The mandate letter states the finance minister will “review and consider recommendations from financial agencies related to making the borrower stress test more dynamic.”

Canada has stress tests in place for home loans that are insured against the borrower defaulting on their payments and those that are not. The insured test was brought in by the finance ministry, while the uninsured test was instituted by the Office of the Superintendent of Financial Institutions.

Canada’s real estate industry has been critical of the stress test since its inception – especially on uninsured mortgages - for being a drag on the housing market. One being it wasn’t adjusted following a rise in interest rates which put pressure on borrowers.

In his considerations, Morneau must adhere to key principles for implementing the government’s fiscal plans. They include:
•Reduce debt-to-GDP
•Preserve Canada’s triple-A credit rating
•Continue investment in “people and in the things that give people a better quality of life”
•Preserve “fiscal firepower” in case of an economic downturn