Canada’s main banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has proposed new mortgage qualification rules that would make it tougher for potential homebuyers to obtain financing.
The OSFI has announced it is looking to introduce a new benchmark interest rate that would determine if potential homebuyers qualify for an uninsured mortgage at a minimum rate of 5.25%. The current rate sits at 4.79%, and mirrors rates issued by the country’s six major lenders. “Sound residential mortgage underwriting is always important for the safety and stability of financial institutions,” explained OSFI head Jeremy Rudin.
The latest move comes amid a rapidly accelerating real estate market that has sent housing prices soaring to record-highs. According to calculations by the Canadian Real Estate Association, housing prices have risen 17% across the country in the past year. The surge in prices has caught the attention of economists and policy makers, who are calling on regulatory bodies to step in and prevent a potential housing bubble crash.
According to the OSFI, the current housing market conditions “have the potential to put lenders at increased financial risk,” and could force regulators to swiftly react. The banking regulator noted it will assess the updated qualifying rate at least once per year to determine if it is still applicable. The OSFI plans to implement the rule change on June 1, following consultations.
Information for this briefing was found via the OSFI and CREA. Thee author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
