🇨🇦 OSFI to Tighten Mortgage Lending 🏠

In the face of the rising risk in the mortgage market, the Canadian financial regulator OSFI is soliciting feedback on more restrictive underwriting rules.

In a meeting held earlier this week (Jan), bank CEOs provided the latest info:

Scotia: 20,000 or 2.5% of mortgage customers at risk.

RBC: >50% of variable rate holders reaching trigger rates.

Other banks see similar impacts from the rate hike.

OSFI has put a buffer in its policy: borrowers need to qualify under the higher stress test rate and the actual rate plus 2.00%. But it is not enough when the market experienced a 400 bps rate hike in a year.

Bank of Canada published an analysis last November - estimating 65% of variable rate and fixed payment mortgage holders to reach trigger rates in 2023.

The policymaker has to react - when such a large scale of negative amortization is happening.

The additional risk measures in discussions:

- Interest rate affordability stress tests

- loan-to-income / debt-to-income restrictions

- debt-service coverage restrictions

Sources: Toronto Star