On June 1, 2021, the Liberal government last increased the stress test for homebuyers who take out a mortgage, which comprises the vast majority of homebuyers.
For those who don’t know, a stress test requires a homebuyer to qualify for a higher interest rate compared to the currently lower interest rates to ensure they can still make their mortgage payments when interest rates rise.
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Essentially, a stress test is designed to ensure that a homebuyer has some financial surplus at their income level to be able to afford an increase in their mortgage payment should interest rates rise.
While some might argue that the stress test protects people from potentially higher interest rates, in my experience, many who are lucky enough to pass the stress test and buy a home don’t stop there. They take out loans to make additional purchases such as home improvement, furniture or car loans.
Why am I raising this now? As many will know this week, there was a general expectation that the Bank of Canada would raise interest rates, but that didn’t happen.
Instead, the current interest rate was kept, although the Bank of Canada warned: “Interest rates must rise to control inflation. Canadians should expect rising interest rates.”
This means for those with an adjustable rate mortgage. Your monthly payments will increase in the near future. Those with a fixed-rate mortgage may also potentially incur higher interest rates on renewal when their current interest rate expires.
While stress tests are important public policy tools, other challenges remain.
Based on feedback I’m hearing from many households here in our region, there are new fiscal challenges that are putting pressure on household finances.
Apparently, with inflation at its highest level in 30 years, many citizens are being forced to pay more for goods, food and, in some cases, services, and are getting less in return.
Petrol and diesel prices have risen. Likewise, the cost of gas to heat your home has increased, as have some of the taxes on your home heating.
At the same time, due to higher premiums for payroll deductions such as Canada’s pension plan, many citizens have found their net income to be less than last year.
Moreover, despite the Liberal government’s promise to cut your monthly cellphone bills by 25 percent, that hasn’t materialized. While the Liberal government also vowed not to tax online streaming services like Netflix, as many now know, online streaming services are now being taxed.
All of these increased taxes and fees weigh on your household net income at a time when payroll deductions are doing the same.
Depending on how much the Bank of Canada raises the interest rate, I’ve heard from several citizens who have indicated that their monthly mortgage payments could increase by as much as $400 to $800 a month, having a significant impact on their net income. Some have suggested that higher interest rates combined with higher inflation, fees and tax hikes create a situation they cannot afford.
Even more so as Canada’s ever-rising pension plan and employment insurance premiums (which will be ended by the premium freeze this year) continue to erode their net discretionary income.
My question this week: Are you concerned about the affordability of your own household?
Dan Albas is Member of Parliament for Riding Central Okanagan Similkameen Nicola and Shadow Secretary of State for Environment and Climate Change.
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ColumnistFederal Politics
