Stricter Mortgage Qualifying Rules
OSFI, Canada’s banking regulator, is once again looking at “clamping down” on higher-risk borrowers from entering the market.
In 2016, the Department of Finance introduced the “stress-test” on insured borrowers. Then in 2018 OSFI expanded the stress-test to include uninured borrowers.
OSFI is back at it again, and they are proposing new rule changes to minimize lenders’ risk.
Credit defaults are on the rise in Canada, and OSFI is constructing new policy with the purpose of protecting lenders’ from risk of defaults in case a borrower loses their job, suffers from a divorce or experiences a sudden increase to interest rates.
OSFI is considering the following 3 approaches:
- Restrict mortgage debt, OR total debt, to 4.5x annual income – Very aggressive.
- Create stricter debt servicing coverage restrictions similar to what we see with insured mortgages – Very aggressive.
- Create a more adaptive Interest rate affordability stress test based on different risk characteristics, product types and term lengths.
OSFI said it may choose to pursue “one or more of these measures or others that meet OSFI’s prudential policy objectives.”
OSFI has an open consultation period for industry professionals to give their suggestions until April 14, 2023. Afterwards, OSFI will be reviewing these suggestions and should have new rules to implement by December 2023.
Click the links to learn more:
- Canadian Mortgage Trends – https://www.canadianmortgagetrends.com/2023/01/osfi-proposes-new-mortgage-restrictions/
- Public Consultation on B-20 Guidelines – https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b20-cd.aspx