OSFI says it may adjust mortgage stress test rules before the end of 2022

In its recent statement, the Office of the Superintendent of Financial Institutions (OSFI) noted it could make certain “adjustments” to its mortgage qualifying rate before the end of 2022.

As a rule, each December, OSFI reviews the qualifying rate before the following busy spring real estate season.

However, last week, an independent federal agency supervising hundreds of financial institutions and over 1,000 pension plans in Canada, pointed out the announcement may come earlier.

“During the rest of the year, OSFI will keep monitoring the national real estate market and mortgage sector, and could make adjustments at any moment if it’s necessary for the health of the Canadian lending segment,” – OSFI stated.

Some experts from the housing industry consider it to be a signal the office could really act amid growing interest rates this year and a decline in home sales.

According to the TRREB, the region’s real estate market reached its peak in February with properties sold for an average $1.33 million.

However, an interest rate increase seen in April and forecasts of more hikes from the Bank of Canada, combined with other factors pushed average prices down to $1.25 million (which is still 15% higher than a year earlier).

Nevertheless, the market is cooling on its own, as prices are falling. Initially, OSFI introduced the stress test in order to cool the market, so they might not need any further cooling of the market.

According to the stress test rules, home buyers with a minimum 20% down payment (avoiding mortgage insurance) are required to prove they can withstand mortgage payments at an interest rate of 5.25% or their mortgage contract rate plus 2% (the higher one is chosen). The test was implemented in 2016-17 to cool the market and make sure buyers won’t be devastated by future interest rate increases.

The current average rate for five-year fixed mortgages varies from 4.19% to 4.25%.

In case of the requirement of 2% plus contract, a borrower needs to show the ability to withstand an interest rate of up to 6.25%. This means, the stress test reduces your purchasing power by about 20%.