Tighter Rules Could Mean No Mortgage for Some Canadians.
The new mortgage “stress test” came into effect on Jan. 1, 2018 in Canada requiring virtually all prospective home buyers to meet tighter lending restrictions. According to some estimates, the tighter qualifying standard could shut out some 10% of lower down payment buyers compared to regulations in 2017.
Toronto and Vancouver will likely see the biggest impact from the new restrictions but the effects will no doubt ripple into smaller communities.
The new “stress test” will affect home buyers applying for mortgages that are less than 80 per cent of the value of the property they wish to purchase. Borrowers will have to qualify for rates that are higher than the contractual mortgage rate they would actually be eligible to assume. This effectively reduces the buying power of a consumer with an uninsured mortgage by about 20 per cent, according to some industry experts.
The Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of Guideline B-20 − Residential Mortgage Underwriting Practices and Procedures.
OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.
- Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
These rules assure that all mortgage holders can cope with any unforeseen rising interest rates and are now similar to those rules already in effect for borrowers with down payments under 20 per cent.
Many concerns were submitted as comments and responses were issues by OSFI on topics such as mortgage renewal qualifications. These comments can be reviewed here on the OFSI website.
“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,” said Superintendent Jeremy Rudin.
Paul Taylor, President and CEO of the Mortgage Professionals Canada, is concerned about how much these changes will impact the real estate market and suggests that it could stress smaller communities. Taylor says, “Reducing the number of people who can afford those homes now is only going to exacerbate the problem,” He goes on to say, “When house prices come down, you can potentially create a recessionary environment in pockets across the country.”
Time will tell, probably sooner than later, what effects these mortgage qualification rules will bring about for Canadians.
If we can help you with obtaining a mortgage please contact Michael J Preston at 705-309-1747.