Mortgage regulations could tighten further

January 23, 2023



As Canada’s housing sales plunge and prices in different markets plateau or tumble, the Office of the Superintendent of Financial Institutions (OSFI) is dreaming up new ways to make it even harder to afford a home.
OSFI announced proposals January 12, 2023, in response to what it says are building risks in Canada’s residential mortgage market.
“Unprecedented house price increases have been accompanied by record levels of household indebtedness, of which residential mortgages account for a large share,” OSFI said in its consultation document. “Federally regulated financial institution lenders, which hold approximately 80 per cent of all residential mortgages in Canada, are exposed to heightened risks from this indebtedness.”
OSFI’s three proposals include:

• Loan-to-income (LTI) and debt-to-income (DTI) restrictions: Measures that restrict mortgage debt or total indebtedness as a multiple or percentage of borrower income.
• Debt service coverage restrictions: Measures that restrict ongoing debt service (principal, interest and other related expenses) obligations as a percentage of borrower income. Additionally, OSFI said it could limit lenders to a certain volume of loans with high debt-service ratios.
• Interest rate affordability stress tests: OSFI could adopt more “risk-sensitive” tests of affordability beyond the current minimum qualifying rate of 5.25% used in existing mortgage stress tests.

None of the proposed changes will be finalized until after OSFI’s consultation period which is open until April 14, 2023.