BREAKING NEWS! OSFI TIGHTENS mortgage stress test rules
From what we know at the moment, the qualification rate for uninsured mortgages (with a down payment of at least 20% or in case of refinancing) is raised to 5.25% or a contract rate +2% (the higher one is chosen). This reduces maximum qualification amount compared to the current conditions by about 4-5%. Today, the qualification rate (currently at 4.79%) is set by the Bank of Canada each week based on posted rates of the largest commercial banks. OSFI’s new rule takes this leverage away from banks’ influence and, thus, OSFI can hypothetically change it the way it wants! The new regulations take effect on June 1, following additional consultations. Check for updates!
The Office of the Superintendent of Financial Institutions (OSFI) plans to review its stress test regulations for residential mortgages.
On Thursday, the OSFI launches a new consultation on the stress test in order to see whether changes are necessary to the framework that determines if a borrower qualifies for a loan.
Today, due to the stress test, borrowers with a down payment of at least 20% have to prove they are able to keep on paying off the debt in case of a much higher rate: the current market rate plus 2%, or the central bank’s five-year rate (the higher one is chosen).
As five-year fixed mortgage rates now don’t exceed 2%, borrowers must prove they can withstand a hike to the BoC’s 4.79% rate. At first, OSFI introduced a version of this stress test in 2016 amid worries that borrowers may get too large mortgages because of a sharp prices increase.
A new cycle of consultations appears more than a year after OSFI dropped its review of the rules. It was supposed to launch a consultation in the middle of March 2020, but it was cancelled due to COVID-19 uncertainty, as many were afraid of the pandemic pushing home prices down significantly.
As we know, the combination of historically low interest rates and a remote work trend have led to a strong prices increase, and not a decline. Average real estate prices in Toronto and Vancouver have reached $1 million during the pandemic, and the hot activity is spreading outside the major cities. As a result, home prices in certain suburbs rose by more than 30%.
We don’t know which way OSFI will go, but they are not letting people to get mortgage any easier considering recent housing market runaway – that’s for sure!