The Canadian Office of the Superintendent of Financial Institutions this morning announced stress testing rules will be expanded to include both uninsured and insured mortgages in Canada.
Starting January 1, 2018, Guideline B-20 requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
In addition, federally regulated financial institutions are prohibited from doing additional credit arrangements in any form that circumvents the institution’s maximum loan to value ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
These changes are long overdue and just a few more steps in restoring some prudent lending rules in what has been a decade of wild west credit abuse in Canada. In the longer run these moves are important in shoring up more stable financial foundations for households and the economy. In the near term though, it is another move likely to help mean revert Canadian real estate sales and prices. And the process will not be pain free.
