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On March 13, 2020, our banking regulator suspended its work on improving Canada’s uninsured mortgage stress test. Its decision was made in response to challenges posed by COVID-19.
Prior to that, OSFI had indicated that a new and improved stress test would start as soon as April 6, 2020, pending public consultation and review. At the time, the regulator acknowledged the existing stress test was broken because it was based on posted bank rates that became too inflated relative to actual rates.
COVID threw a monkey-wrench in OSFI’s plans, however. Consequently, its deferral of stress test fixes resulted in some borrowers:
- qualifying for smaller mortgage amounts than reasonable, given their qualifications, or
- not qualifying at all.
OSFI’s Reasons
Regarding why it suspended its policy work, “This was done to alleviate some of the pressure on federally regulated banks, insurers and private pension plans so that they can focus their efforts on the most critical operational areas during the COVID-19 pandemic,” said Michael Toope, Senior Communications Advisor at OSFI.
Simultaneous with OSFI’s decision, the Department of Finance also suspended its implementation date for a new insured mortgage stress test. That change, which would have reduced the minimum interest rate that insured borrowers must prove they can afford, was also slated to take effect April 6, 2020.
When Will it Happen?
“OSFI launched the B-20 benchmark rate consultations prior to the pandemic, and since then the environment has changed,” said Toope.
Indeed it has. The national average home price is up almost 6% since the pandemic began and 14.3% year-over-year, fuelling concern over housing stability amid high unemployment and hefty debt loads.
“Currently, the housing market in Canada continues to evolve given the unprecedented conditions brought on by the COVID-19 pandemic. OSFI needs to be sure that consultations on the new proposed B-20 benchmark rate for uninsured mortgages reflects Canada’s new context.”
“OSFI will continue to monitor the environment closely, and will carefully consider the next steps on this important consultation,” he added. “At the appropriate time, OSFI will resume consultation on the benchmark rate with considerations of the new operating environment.”
OSFI didn’t say whether that’ll happen this year, next year or later. The regulator did say in July, however, that it planned to be “resuming” its “policy work” in the fall. So, there’s hope.
The good news is, stress test fixes aren’t dead. If/when they finally get here, it’ll be welcome news for prospective homebuyers with temporarily high debt loads (e.g., those with monthly expenses totalling over 40% of their gross monthly income).
3 Comments
With rates so low and home prices so high I wonder if they will increase the “buffer” with the new stress test to something like the weekly median 5-year fixed insured mortgage rate PLUS 250 basis points?
I feel there is no meaning to stress test rate
People are able to get mortgages through
Agents
Mortgage agents use lenders that use the stress test. The exceptions are credit unions and subprime lenders which are both expensive options. No one that could have easily qualified without this asinine stress test should have to pay those high rates.