Greg Bonnell, BNN   20 October 2017 

Canadians looking to buy a home before new mortgage rules sap their purchasing power may not have a much time — or as many options — as they think, warn market observers.

 While the country’s banking regulator has set January 1, 2018 as the date for new stress tests to take effect, the expectation is that many federally regulated lenders will usher in the changes before then.

“Just a word of advice for anyone looking to purchase or refinance in the next couple of months: the banks could move up the policy date,” Samantha Brookes, CEO and founder of Mortgages of Canada, told BNN in an email.

“My guess is we will see some of the lenders start adding the stress-test requirements in December.”

On Tuesday, the Office of the Superintendent of Financial Institutions tightened rules governing the mortgage market – known in the industry as the B-20 guidelines.

Stress tests meant to ensure borrowers can afford their homes at a higher interest rate were extended to buyers with a down payment of 20 per cent or more – the uninsured mortgage space.

RateHub.ca suggests it could cut a family’s purchasing power by up to 21 per cent, once the new test is in place.

While the deadline is January 1, OSFI made clear on Tuesday it expects the banks it regulates to comply, where possible, with the “principles and expectations set out in this guideline as of the date of this letter.”

That said, industry observers say it will likely take a little time for banks to change their systems and policies. That still “allows enough time to pull demand forward,” Bruce Joseph, principal broker at Anthem Mortgage, told BNN in an email.

“This could give the appearance of a stronger market in the next few weeks,” said Joseph.

“The first quarter of 2018, therefore, has a real potential of looking awful in terms of prices, volumes - not only from the decrease in demand from credit tightening but also from pulling demand forward.”

Savvy buyers may know that OSFI’s rules apply to federally regulated financial institutions, and those banks are not the only lenders in town.

Credit unions, as a general rule, answer to provincial regulators. That has raised the spectre of buyers simply crossing the street and taking their business to a credit union to avoid the new stress test.

Still, it might not be that easy.

“B-20 will impact [credit unions] to the extent that provincial regulators follow OSFI’s lead, or to the extent that credit unions look to OSFI guidance as best practice – this is common,” Martha Durdin, president and CEO of the Canadian Credit Union Association, told BNN in an email.

“Credit unions that securitize loans are also impacted by B-20 in that market participants will likely want to only buy B-20 compliant mortgages.”

There’s evidence that credit unions are already thinking along those lines.

Meridian, one of Ontario’s larger credit unions, says it’s reviewing B-20 even though it “does not technically apply to our business.”

“Meridian will consider that guideline as we are a prudent and responsible lender with a strong balance sheet,” Meridian president and CEO Bill Maurin told BNN in an email.

The B-20 guideline also represents yet another policy move in the wake of numerous interventions aimed at cooling and stabilizing the country’s real estate markets.

While stress tests are aimed at bolstering financial stability, there’s “concern that there’s too many things happening at once,” Robert Sedran, financial services analyst at CIBC Capital Markets, told BNN in an interview.

“It’s the one thing that makes us a bit cautious on what they’re doing right now,” said Sedran.

“We think we’re still okay, it’s just the concern becomes throwing too much at (the market) at the same time.”

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 Andre Houle, Mortgage Group                                                                                                 10/1/2017

The Office of the Superintendent of Financial Institutions (OSFI) released revised guidelines for the mortgage industry, similar to the draft version released earlier this summer. These new parameters will take effect January 1, 2018.　

OSFI said they will be holding information sessions through the fall to discuss implementation expectations. These new guidelines include a stress test for uninsured mortgages or mortgages with more than a 20% down payment or 20% in existing equity.　 This new stress test means that borrowers will be qualified at the greater of their contract rate + 2% or the five year benchmark rate published by the Bank of Canada, which is currently 4.89%.

To give you some numbers, per $100,000 in mortgages. Based on an interest rate of 3.29% with a 25yr amortization.
Mortgage Payment - $488.25 (3.29% with 25yr am)
Benchmark Rate Payment - $575.36 (4.89% with 25yr am)
Stress Test Payment - $598.22 (5.29% with a 25yr am)

Lenders determine how much money you can borrow by determining what percentage of your income can go towards your mortgage and debt payments. The new requirement will determine the mortgage payment based on the higher of the benchmark rate or stress test rate, even though your contract rate is 3.29%. This will reduce your maximum allowable mortgage by approximately 20%.

These are not the only changes made today, below is a summary of all the changes:

• A new minimum qualifying rate (stress test) for uninsured mortgages
• Lenders will be required to enhance their Loan to Value (LTV) measurement and limits to ensure risk responsiveness
• Restrictions will be placed on certain lending arrangements that are designed or appear designed to circumvent LTV limits.

 The guidelines go into effect January 1, 2018. We are watching them closely.

Summary of OSFI’s Mortgage Underwriting Guidelines B-20 revisions:

Introduction of a Minimum Qualifying Rate (Stress Test) for Uninsured Mortgages

The new minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the Bank of Canada, which is 4.89% or the contractual rate plus 200 basis points. 

Lenders will be required to enhance their LTV measurement and limits

Lenders must establish and adhere to appropriate LTV ratio limits that are reflective of risk and must continually update as housing markets and the economic environment evolve.

Restrictions will be placed on certain lending arrangements that are designed or appear designed to circumvent LTV Limits (ie Co-Lending)

Federally-regulated financial institutions are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio – so limits in mortgage bundling.

It is important to note that these changes to B-20 are not technically required by Credit Unions. That said, in the past, adherence to B-20 has occurred by some CUs for all or some of the guidelines. Given the funding capacity of Credit Unions, there may be some changes to their policies as well.

Please feel free to reach out to me if you have any questions.

Edmonton Real Estate, Houses for Sale in Edfmonton, YEG - Nooran Ostadeian Realtor with RE/MAX Elite