Canada’s banking regulator has published the final changes to its guidelines for residential mortgage underwriting, including a financial stress test for buyers who don’t need mortgage insurance.
The Office of the Superintendent of Financial Institutions (OSFI) says Tuesday the changes will come into force by January 1, 2018.
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Even homebuyers who don’t require mortgage insurance because they have a down payment of 20% or more will have to prove they can continue to make payments if interest rates rise.
“Broadening the stress test will likely further slow housing activity, depressing demand by 5% to 10% once implemented, with some pull-forward of activity likely to take place ahead of the January 1 implementation date,” says Brian DePratto, senior economist at TD Economics, in a release. “Price growth will also be impacted, with these changes expected to exert a drag of between 2% and 4% over 2018. On balance, these changes should help enhance the resilience of the Canadian banking system in a rising interest rate environment.”
Other changes include restrictions on co-lending, or bundled mortgages, aimed at ensuring financial institutions do not circumvent rules that limit how much they can lend.
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The final guidelines are generally similar to what OSFI had proposed in July, when the regulator put out a draft for public consultation.
The proposed changes, however, have been criticized for including potentially increasing costs and limiting access to mortgages for some home buyers.
“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,” says superintendent Jeremy Rudin in a statement on Tuesday.