Banking regulator relaunches consultations on overhaul of mortgage stress test after pandemic disruption
Canada’s banking regulator has said it will make another attempt to change the mortgage stress test that determines whether borrowers qualify for a home loan.
The Office of the Superintendent of Financial Institutions (OSFI) said it will issue a “new consultation” on Thursday, as economists and some bank CEOs call on policymakers to deal with soaring house prices.
It is unclear whether OSFI will revert to plans proposed early last year to bring the stress test of uninsured mortgages closer to the market rate. Currently, the rules require banks to qualify borrowers at a rate two percentage points above the market rate or the Bank of Canada’s 5-year conventional rate of 4.79 percent, whichever is greater. high of both.
Given that mortgage rates are near historic lows and the five-year fixed loan rate is less than 2 percent, this means that most borrowers had to qualify at the 4.79 percent rate. the central bank. Despite the stricter requirements, the Canadian real estate market has reached record levels month after month.
Many parts of Ontario, the Maritimes, British Columbia and Quebec experienced price hikes of 20 to 35% during the pandemic. Prices for a typical single-family home in some Ontario suburbs have increased by at least $ 100,000 in three months.
If OSFI takes steps to make the stress test more sensitive to the market rate, borrowers will be able to get larger loans, pushing prices even higher.
“If they do, it will make the test easier. Not sure they want to do it in this environment, ”said Benjamin Tal, deputy chief economist at the Canadian Imperial Bank of Commerce.
OSFI declined to say whether the new consultation was similar to the previous one. The regulator and the Federal Agency for Insured Mortgages had been working on stress test changes in early 2020. But when the COVID-19 crisis began in March of last year, they suspended consultation.
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