Time is running out before new Canadian mortgage rules kick in, which could potentially make it harder for first-time buyers to get a mortgage.
On January 1, the Office of the Superintendent of Financial Institutions’ (OSFI) new stress test will require all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract mortgage rate plus an additional two per cent.
The tightening of the lending rules comes a year after a stress test was implemented for insured mortgages in October 2016. Now extending to all mortgages starting in the New Year, the stricter qualification process aims to ensure borrowers will be able to withstand higher interest rates.
However, the stricter lending criteria coupled with projected rate hikes next year could make it harder for buyers to enter the market.
“Both of these factors are going to raise the bar even higher for first-time home buyers, in particular, that in our view will cool demand overall,” RBC Senior Economist Robert Hogue tells BuzzBuzzNews.
According to TD Bank Senior Economist Brian DePratto, OSFI decided to tighten the mortgage lending rules after its internal data suggested that the amount of uninsured mortgages is rising.
In August, insured mortgages were down 4.5 per cent year-over-year but uninsured mortgage credit increased 17.3 per cent from a year ago.
Hogue says the new mortgage rules, announced in October, pose downside risks for the country’s housing market. He adds that the market is already showing signs of a soft-landing, which he believes is still the most likely outcome for the market in 2018.