OTTAWA (dpa-AFX) - Canada's banking regulator has released tougher mortgage-financing rules for borrowers in the uninsured segment of the mortgage market, which has been responsible for the major share of growth recently.
It includes a requirement to 'stress test' borrowers with uninsured loans to ensure they can withstand the impact of higher interest rates.
However, experts fear that the stringent new measures could slow home buying drastically in a market that is already struggling due to high borrowing costs. The new rules comes into effect on January 1, 2018 and will apply to all federally regulated financial institutions.
The new measures were first proposed by the Office of the Superintendent of Financial Institutions or OFSI in July. Tuesday's announcement means that the final version of the new mortgage rules now become official from next year.
'These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,' OFSI Superintendent Jeremy Rudin said Tuesday.
The OFSI said it is now setting a new minimum qualifying rate, or 'stress test' for uninsured mortgages.
The new guidelines requires the minimum qualifying rate for uninsured mortgages to be greater of either the five-year benchmark rate published by the Bank of Canada, or 2 percent above the contractual mortgage rate.
The new provision would require all prospective buyers, even those borrowers who make a down payment of more than 20 percent, to undergo the stress test before they cane be issued a loan. Earlier, only buyers with down payment of less than 20 percent had to undergo a stress test and were required to purchase mortgage insurance.
However, economists fear the move could be counter-productive in a market already hit by higher borrowing costs. Another headwind to the market came after the Bank of Canada raised its benchmark interest rate twice since July.
Copyright RTT News/dpa-AFX