Banking watchdog launches fresh consultation on mortgage stress test

  4/8/2021 |   SHARE
Posted in Home Buyers by Sam Cuda & Nancy Cuda | Back to Main Blog Page

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Canada’s top banking watchdog is about to take another stab at overhauling its stress test on residential mortgages.

The Office of the Superintendent of Financial Institutions (OSFI) will launch a new consultation on the stress test Thursday with the goal of determining whether changes are needed to the framework that dictates whether or not borrowers can qualify for a loan.

Currently, the stress test requires borrowers who put down at least 20 per cent to prove they could meet their uninsured mortgage obligations at a much higher rate – either the current market rate plus 200 basis points, or the Bank of Canada’s five-year rate, whichever is higher.

With five-year fixed mortgage rates currently well below two per cent, borrowers must prove they could continue repaying their mortgage at the central bank’s 4.79 per cent. OSFI first implemented a version of the stress test in 2016 amid concerns borrowers could be getting in over their heads with large mortgages due to a run-up in home prices.

The fresh round of consultations come more than a year after OSFI abandoned its review of the measures. The watchdog dropped its consultations in mid-March of 2020 due to COVID-19 uncertainty, as many policymakers feared the pandemic would send home prices spiraling.

Those concerns about a sharp drop in home prices failed to materialize, as a combination of rock-bottom interest rates and the shift to a work-from-home regime sent prices skyrocketing. Average home prices in Toronto and Vancouver have eclipsed $1 million during the pandemic, and the heat has bled into outlying areas, sending prices in some suburbs more than 30 per cent higher.

Source: BNN Bloomberg

Home Buyers, OSFI, Stress Test

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