Sound residential mortgage underwriting is always important for the safety and stability of financial institutions; today it is more important than ever. – Jeremy Rudin, Superintendent
The Office of the Superintendent of Financial Institutions (OSFI) restarted its consultation on the minimum qualifying rate for uninsured mortgages, and re-emphasized the importance of sound mortgage underwriting. This is likely stemming from several Big-Five bank CEOs calling for regulatory action to slow the red-hot housing market. Increasing the qualifying rate would help ensure borrowers can pay their mortgages if rates rise.
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. 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.
In the release, OSFI stated that, “The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of a change in circumstances, such as the reduction of income or a rise in mortgage interest rates. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers can repay their loans strongly contributes to the continued safety and soundness of Canada’s financial system.”
This change means that borrowers will need to prove that their finances can pay for the loan at that higher rate, regardless of what a lender is willing to lend them. This will make it harder to qualify for a home loan, shrinking the pool of qualified borrowers and ultimately bringing down some of the upward pressure on the house prices here in Canada.
As a result, this may cause the current boom in home buying to accelerate further in the spring market by pushing borrowers to get in under the June 1st. deadline. If this policy has the desired effect of slowing home value appreciation, it will likely be a good thing for first-time homebuyers in the long run.
The comment period ends on May 7. OSFI reported that they would communicate the revised B-20 Guideline by May 24, with an implementation date of June 1, 2021.
If you’re a first-time home buyer hoping to get into the market before these proposed changes are put in place, give us a call at 604.537.4281 and we would be happy to help you find your dream home!