OSFI says that mortgage underwriting is especially true amid "changing conditions" could make repayments harder
When the Bank of Canada announced a hold-steady for interest rates almost two weeks ago, it hinted at increases ahead.
Its statement talked of keeping rates low “until economic slack is absorbed so that the 2% inflation target is sustainably achieved.” In the bank’s opinion “this happens sometime in the middle quarters of 2022.”
With concern expressed about the continuing demand – and price increases – adding vulnerability to the housing market, the financial institutions’ regulator has advised lenders to be ready.
The Office of the Superintendent of Financial Institutions (OSFI) confirmed Friday that the minimum qualifying rate for uninsured mortgages will remain the greater of the mortgage contract rate plus 2% or 5.25%.
Referring to high levels of household indebtedness and current low interest rates, OSFI advised lenders to stress test their borrowers to ensure that they can meet payments “during more adverse conditions.”
This, it said, was essential to mitigate risk to lenders’ balance sheets and protect the stability of the Canadian financial system.
“Sound mortgage underwriting is critical for maintaining the stability of the financial system,” commented superintendent Peter Routledge. “This is especially true now when changing conditions such as potentially rising interest rates could make repaying mortgages more difficult in the future.”
While OSFI’s qualifying rate for uninsured mortgages is typically updated in December annually, the regulator says that rates are constantly monitored and will be adjusted if warranted.
