Canada’s banking regulator – The Office of the Superintendent of Financial Institutions (OSFI) – announced three new regulatory proposals in January that could further limit mortgage lending pending a consultation period.
OSFI’s three proposals are focused on debt serviceability measures that include:
- Loan-to-income (LTI) and debt-to-income (DTI) restrictions. This would involve measures that restrict mortgage debt or total indebtedness as a multiple or percentage of borrower income.
- Debt service coverage restrictions. This would involve measures that restrict ongoing debt service (principal, interest and other related expenses) obligations as a percentage of borrower income.
- Interest rate affordability stress tests. This could see OSFI adopt more “risk-sensitive” tests of affordability beyond the current minimum qualifying rate (currently 5.25%) used in the existing mortgage stress tests.
OSFI notes that, if implemented, these measures could be introduced at the:
- Loan level – Applied for each borrower’s mortgage application; or
- Lender level – Applied on the lender’s aggregate volume or portfolio of mortgage business
At the lender level, limits can also be applied at different levels of measurement, restricting either the dollar value or count of the:
- Flow, or volume, of new mortgages underwritten; or
- Stock of outstanding mortgages (portfolio)
As part of the consultations, OSFI is asking for stakeholder views on how these debt serviceability measures may be implemented, and other methods that could be used to address prominent risks arising from high household indebtedness.
Stakeholders who wish to make a submission are required to do so before the consultation closing date of April 14, 2023. Feedback from this consultation will inform proposed revisions to Guideline B-20, which will be issued for public consultation in the form of a draft guideline at a future date.
Have questions about these new rules and/or how they could impact your borrowing power? Answers are a call or email away!