Regulator proposes new minimum qualifying rate for uninsured mortgages in Canada

Jessy Bains
·3 min read
Approved Mortgage loan application with house key and rubber stamp
Proposed mortgage changes would make it more difficult to qualify for a mortgage (Getty)

The Office of the Superintendent of Financial Institutions (OSFI) is proposing changes to the qualifying rate on uninsured mortgages.

"The new proposal for the qualifying rate for uninsured mortgages is the higher of the mortgage contract rate plus 2% or 5.25% as a minimum floor," said OSFI in a release on Thursday.

"Additionally, OSFI announced a proposal to revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment."

The recommendations are part of ongoing consultations. The banking regulator says the move will help promote post-pandemic financial stability, especially considering how red-hot many Canadian real estate markets have been.

"The current Canadian housing market conditions have the potential to put lenders at increased financial risk," said OSFI. "OSFI is taking proactive action at this time so that banks will continue to be resilient."

The regulator says the move will help protect the financial system in the event of a drop in income or rise in mortgage rates.

Ron Butler, a broker at Butler Mortgage, says the proposed increase will have minimal effect.

"This is a naked move to reduce mortgage qualification to stifle mortgage lending and that's 100 per cent OSFI's purview if they think lending is overheated, it's just good they have to wear it now instead of pretending it's fake consumer protection," he told Yahoo Finance Canada.

"This is an attempt to slow down the price growth in the Canadian real estate market plain and simple."

According to Ratehub.ca’s online mortgage calculator, a family with an annual income of $100,000 with a 20 per cent down payment and 5-year fixed mortgage rate of 1.78 per cent amortized over 30 years would qualify for a home valued at $651,000 under today’s 4.79 per cent qualifying rate.  

Under the proposed stress test rate of 5.25 per cent, the family's maximum affordability would decrease to $618,000 for a difference of $33,000.

Minister of Finance Chrystia Freeland said the federal government is committing to housing affordability.

"Maintaining the health and stability of Canada’s housing market is essential to protecting middle-class families and to Canada’s broader economic recover," she said in a release.

"We will continue to monitor housing market conditions across the country. To inform potential steps the government may take, we will closely examine the results of the consultation announced by the Superintendent of Financial Institutions."

Interested stakeholders can submit their input to OSFI by emailing B.20@osfi-bsif.gc.ca before May 7. Amendments will be communicated by May 24, 2021, and come into force on June 1, 2021.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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