From June 1, homebuyers will be faced with tougher mortgage stress test rules in Canada, which could make it more difficult for some people to get onto the property ladder.
This follows an update to Canada's mortgage rules announced by the banking regulator in May, in response to an overheated housing market.
The change will impact how much money the government will allow banks to lend to prospective homebuyers, based on how much the applicant could pay back if interest rates were to climb.
What has changed?
Prior to the update on June 1, Canadians applying for an uninsured mortgage had to pass a stress test, proving that they would be able to continue to pay their mortgage if interest rates were to hit 4.79%.
This value has now been raised and prospective borrowers must prove that they can keep paying if interest rates hit 5.25% (or 2% above their contract rate, whichever is higher).
This even applies to prospective buyers with a down payment of 20%.
While the change won't make it any more expensive to get a loan, it will prioritize giving mortgages to those who have enough financial flexibility to continue their payments if rates go up.
Who does it affect?
Ultimately, it impacts everyone in Canada who is hoping to qualify for a mortgage to buy a property. However, some experts argue that it's likely to hit first-time homebuyers particularly hard.
James Laird, the co-founder of ratehub.ca and president of CanWise Financial, told Global News that regardless of income, "your affordability is reduced."
"However, it's first-time homebuyers who are the ones who are struggling to get into the market," he added.
"They're usually the ones purchasing at the maximum possible affordability. So it's first-time homebuyers who are going to feel the impact of this change, even though it does affect everybody," Laird concluded.
Will it make house prices in Canada cheaper?
While the purpose of the new mortgage rules is to slow Canada's housing market down, this outcome isn't guaranteed.
Experts predict that the change is a "small step" towards slowing the market, but factors like a post-pandemic increase in immigration could change the market again.