Borrowers will be able to get bigger loans if OSFI takes steps to make the stress test more responsive to the market rate.Mark Blinch/The Globe and Mail
Canada’s bank regulator said it will take another crack at changing 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 chief executives call on policy makers to deal with runaway housing prices.
It is not known whether OSFI will revert to plans proposed early last year to tie the stress test for uninsured mortgages closer to the market rate. Currently, the rules require banks to qualify borrowers at a rate two percentage points higher than the market rate or the Bank of Canada’s conventional five-year rate of 4.79 per cent, whichever is higher.
Because mortgage rates are near record lows and the five-year fixed loan rate is less than 2 per cent, that means most borrowers have had to qualify at the central bank’s 4.79-per-cent rate. Despite the stricter requirements, the Canadian real estate market has been hitting record levels month after month.
Many parts of Ontario, the Maritimes, British Columbia and Quebec have seen price increases between 20 per cent to 35 per cent during the pandemic. Prices for a typical detached house in some Ontario suburbs have gone up by at least $100,000 in three months.
If OSFI takes steps to make the stress test more responsive to the market rate, borrowers will be able to get bigger loans and that would further drive up prices.
“If they do that, that 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 comment on 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 started in March of last year, they suspended the consultation.
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Rachelle Younglai