The Office of the Superintendent of Financial Institutions (OSFI) has proposed new mortgage lending guidelines, yet again, that includes a stress test for uninsured mortgages. This is in addition to the existing stress test on insured mortgages.
The federal government and OSFI have been taking steps since last year to cool the housing market and reign in risks taken on by lenders as house prices in certain markets have soared. Most of the recent efforts have focused on the insured segment of the market largely backed by government guarantees.
When the changes were announced in July, we quickly saw home sales and prices come down, but it may have been short-lived — some areas of the country have rebounded just as quickly.
The consultation period ended August 17 and although nothing has been announced as of this writing, it’s likely the proposed changes will be implemented in some form or another soon. This includes a measure whereby homebuyers will have to show they can afford a 2% increase, or the equivalent of 200 basis points, on the interest rate they are approved for. This would apply to variable and fixed-rate mortgages, regardless of term.
For example, a buyer looking to secure a mortgage with a 20% down on a million-dollar home at 3% interest rate would have to prove they could pay up to $4,652 per month instead of the $3,786 on their contract, a difference of $866 per month.
Both these changes could lead buyers to come up with a bigger down payment, opt for a lower priced home, scale back other debt, and some may delay purchasing a home.
Some economists are estimating that these new rules could depress demand by 5% to 10%, and shave 2% to 4% off of the current forecast for the average price level in 2018.