Bank watchdog proposes stiffer mortgage rules amid hot housing market
09 Apr 2021
The changes would raise the minimum qualifying rate for uninsured mortgage to 5.25%
Canada’s bank regulator is proposing to tighten mortgage qualification rules to make it more difficult for home buyers to secure financing, a move aimed at easing financial stability risks stemming from a booming real estate market.
The Office of the Superintendent of Financial Institutions said it will set up a new benchmark interest rate used to determine whether people will qualify for an uninsured mortgage to a minimum rate of 5.25 per cent. The current threshold, based on posted rates of the country’s six largest lenders, is at 4.79 per cent.
Bank watchdog proposes stiffer mortgage rules amid hot housing market
“Sound residential mortgage underwriting is always important for the safety and stability of financial institutions,” Jeremy Rudin, head of the Ottawa-based agency, said in a statement. “Today it is more important than ever.”
The move comes amid a surge in housing prices that’s raising concern among policy makers and economists. Cheap mortgages and new remote-working conditions have spurred a frenzy of demand for more spacious homes, with house hunters bidding up prices across the country.
The Canadian Real Estate Association calculates prices are up 17 per cent nationally over the past 12 months. Twelve major markets — or about one quarter of the total — have posted price gains of more than 30 per cent.
OSFI said housing market conditions “have the potential to put lenders at increased financial risk,” forcing regulators to take “proactive action.” The regulator said it will revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate. The plan is to implement the changes on June 1, after consultations.
The move impacts the uninsured mortgage space that is overseen by OSFI. The federal government is in charge of mortgage qualification for insured mortgages. There was no indication in the statement that the government planned to follow the move, and requests for comment from the finance department weren’t immediately returned.
One unintended consequence could be to temporarily accelerate the market as buyers rush in before the changes are implemented.
“We may well see an even hotter spring housing market as a consequence to OSFI’s move,” Derek Holt, an economist at Bank of Nova Scotia, said by email. “We’ll get more pulled-forward demand.”
