Homebuyers To Face More Stringent Mortgage Stress Test After June 1

The Office of the Superintendent of Financial Institutions (OSFI) has proposed changes to the stress test applied to uninsured mortgages, which would require borrowers to qualify at their mortgage contract rate plus two percentage points or 5.25%, whichever is higher. OSFI is concerned about market conditions and is looking for heightened vigilance from lenders in applying the principles of Guideline B-20 related to collateral management, income verification and debt servicing, combined Mortgage-HELOC loan plans and risk governance. Reaction to the proposed changes was swift, with some saying the increased minimum stress test went too far and others saying it didn't go far enough. This proposal would reduce purchasing power for uninsured borrowers by between 4% and 4.5%. It is similar to the B-20 stress test, which reduced purchasing power by 22%.

However, some see the increase in the stress test's floor rate as overreach, as it is already 300 basis points above some of the lowest uninsured mortgage rates. The stress test applied to insured mortgages fails to take into account two key factors: repayment of mortgage principal and income growth. The Minister of Finance is monitoring housing market conditions and will provide feedback to OSFI by May 7, 2021. Feedback will be communicated by May 24, 2021.