Small victory for Canadian homebuyers: OSFI doesn’t change mortgage stress test qualifying rate

Homebuyers in Canada will not face a stricter stress test when applying for a mortgage loan in the nearest future.

On Friday, the Office of the Superintendent of Financial Institutions (OSFI) decided not to change the minimum qualifying rate for uninsured borrowers (those with a down payment of at least 20%) and kept it at the higher of their contract rate plus 2% or 5.25%.

“Amid growing household debts and low interest rates, it is vital that lenders test their borrowers to make sure they can afford servicing those mortgages during less stable conditions,” – OSFI noted in a release.

OSFI will keep monitoring the appropriateness of its stress test requirements and will adjust them in case it’s necessary.

In another announcement on Friday, the finance department followed OSFI’s example and also kept the minimum qualifying rate for insured borrowers (with a down payment of less than 20%) unchanged.

As you know, OSFI introduced the stress test in order to ensure prudent underwriting practices and to protect the national economy amid growing concern about rising household debt levels caused by record high home prices in Canada’s hottest markets.

By the way, those concerns haven’t vanished, especially as the pandemic changed work habits and revived many of the country’s biggest real estate markets and their bedroom neighbourhoods.

Another reminder of the housing market increased activity came on Friday as the Teranet-National Bank home price index went up to a record high level last month, reporting a 0.4% gain.

It’s true, scrutiny of Canada’s housing landscape has reached the upper ranks of Canada’s largest banks.

“It’s time. We can’t way any more,” – said CIBC President and Chief Executive Victor Dodig.

In his opinion, all levels of government need to collaborate on a solution amid a general idea that the on-going growth in immigration will push the housing demand even higher.

In June, the mortgage stress test was updated las time. Before that, borrowers had to prove they’d be able to pay for their mortgages at the higher of their contract rate plus 2% or the Bank of Canada’s five-year rate, which was at 4.79%.