It was no surprise, but the tightening to mortgage lending underwriting guidelines hit a new level of reality Tuesday as the date for implementation was confirmed.
OSFI says that the changes to the Residential Mortgage Underwriting Practices and Procedures will take effect from January 1, 2018 and that they are part of the regulator’s expectation of lenders’ vigilance in maintaining underwriting standards.
“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,” said Superintendent Jeremy Rudin.
The rules include a stress test for uninsured mortgages which means borrowers must be able to service their debt at a rate 2% above their agreed contract rate.
Critics say that the additional policy tightening is unnecessary as the full impact of previous interventions are not yet fully known, although Canada’s hottest markets have shown signs of cooling.
RBC economist Robert Hogue says that the move will create volatility.
“We expect that, following a brief run-up in activity fueled by buyers rushing to lock-in existing qualifying criteria, the change will have a dampening impact on the housing market shortly after it comes into effect in January. It has the potential initially to rock the market because non-insured mortgages represent a large share of the mortgage market,” he said.
The CEO of Ontario Real Estate Association, Tim Hudak, said that the OSFI move is a step too far, highlighting the impact that previous policy changes have had on Ontario in particular.
“It’s time for governments to hit the brakes on more demand side policy interventions and take a wait and see approach. Ontario’s housing market is too important to the provincial economy to move ahead with unnecessary regulation that will hurt the dream of home ownership,” he said.
The full changes to the B-20 Guideline are on the OSFI website.
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