OSFI seeks public input on beefing up homebuyers stress tests

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Canada’s top bank regulator is seeking public input on whether it should beef up “stress tests” imposed on home buyers as rising interest rates make mortgages more onerous for households already struggling with heavy debt loads.

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The Office of the Superintendent of Financial Institutions (OSFI) is seeking input on whether to adopt a set of proposed complementary debt serviceability measures including interest rate affordability stress tests, loan-to-income and debt-to-income restrictions, and debt service coverage restrictions.

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Since Guideline B-20, which includes the mortgage stress test, was introduced in 2012 and new thresholds added in 2018, “conditions in the Canadian residential mortgage market have shifted significantly,” OSFI said in a statement announcing the consultation.

“Mortgage lending risks, particularly related to debt serviceability, have increased considerably since the onset of the pandemic. These heightened near-term risks underscore the need to consider complementary measures to mitigate them.”

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Currently the mortgage stress test puts the minimum qualifying rate for an uninsured mortgage at the greater of the contract rate plus two per cent, or 5.25 per cent.

OSFI said it may choose to pursue one or more of the proposed measures to meet its prudential policy objectives, based on the feedback it receives as it considers revisions to Guideline B-20.

Submissions can be made until April 14.

“Essentially, OSFI wants to skim another layer of the least-qualified borrowers out of the federally regulated mortgage market,” said mortgage analyst and strategist Rob McLister. “But how they’ll do that is not yet determined.”

More to come …

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