The Office of the Superintendent of Financial Institution (OSFI) has announced a new rule regarding mortgages as part of final revisions to Guideline B-20 on residential mortgage underwriting and procedures. The superintendent Jeremy Rudin has expressed that this was necessary for the current Canadian housing market and the financial system.
Starting January 1, 2018 residential mortgage borrowers with a down payment of more than 20% will need to qualify at a much higher rate. Federally-regulated financial institutions must now set the qualifying rate for non-insured mortgages at the greater of the contractual mortgage rate plus 2% points, or the five-year benchmark rate set by the Bank of Canada. This means that the qualifying rules for non-insured mortgages will be more in line with the insured mortgages. Luckily, for those that are dealing with credit unions this rule is not mandatory to follow so the qualifying rate may remain the same.
What this means for home buyers now is that they will need a minimum income that is $16,000, 18% higher than current requirement. This will make it much more difficult for many buyers moving forward. Large Canadian banks are estimating that the change will negatively affect around 10% of their mortgage originations. Since non-insured mortgages represent a large percentage of the total mortgage market, the change may potentially rock the whole market and have a dampening impact. While this new rule poses some risks to our housing forecast many analysts believe that the market will still have a soft landing. Some buyers may be driven out of the market due to the higher qualifying rate, which could drive down the prices. In the long term, OFSI’s guideline will safeguard Canada’s households and the financial system from a crash landing. Call Claudine the Penthouse Queen for more information.