The Office of the Superintendent of Financial Institutions (OSFI) has just published the final version of new mortgage rules, which include a “stress test” to make sure home-buyers with uninsured loans can withstand a hike in mortgage interest rates. This will impact those who place down payments of more than 20 per cent. Those who put down less than 20 per cent are required to purchase mortgage insurance, and they have had to complete a stress test since 2016. The new change for uninsured mortgagees, which is intended to dampen the housing market, will come into effect on January 1, 2018.
According to the new rule set out by OSFI, borrowers would be stress tested in one of two ways: two per cent higher than their current mortgage rate, or at the five-year average rate posted by the Bank of Canada. This does not, however, apply to mortgage renewals if the borrowers remain with their existing lending institution. Move-up purchasers are most likely to be affected by the new stress test. Fortunately, today’s experienced buyers are educated and savvy, especially investors, who are likely to be able to absorb the effects of the stress test.
OSFI’s announcement is being met with mixed responses. It reminds me somewhat of the backlash that occurred in the spring, when our provincial government announced its 16-point Fair Housing Plan to cool down the market. People feared that those rules would bring the market to a halt. Here we are, however, months later in the GTA, and as far as new condominiums, we are on track to have a year equal to or even better than 2016.
Time will tell what OFSI’s stress test will do to our market. Keep in mind that OFSI’s move is in line with our Canadian conservative banking practices, which helped us to avoid the huge shadow that sub-prime mortgages placed on the U.S. economy a few years ago. As I said, time will tell. Let’s hope for the best!