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Banking watchdog launches fresh consultation on mortgage stress test.

Canada’s top banking watchdog is about to take another stab at overhauling its stress test on residential mortgages.

The Office of the Superintendent of Financial Institutions (OSFI) will launch a new consultation on the stress test Thursday with the goal of determining whether changes are needed to the framework that dictates whether or not borrowers can qualify for a loan.

Currently, the stress test requires borrowers who put down at least 20 per cent to prove they could meet their uninsured mortgage obligations at a much higher rate – either the current market rate plus 200 basis points, or the Bank of Canada’s five-year rate, whichever is higher.

With five-year fixed mortgage rates currently well below two per cent, borrowers must prove they could continue repaying their mortgage at the central bank’s 4.79 per cent. OSFI first implemented a version of the stress test in 2016 amid concerns borrowers could be getting in over their heads with large mortgages due to a run-up in home prices.

The fresh round of consultations come more than a year after OSFI abandoned its review of the measures. The watchdog dropped its consultations in mid-March of 2020 due to COVID-19 uncertainty, as many policymakers feared the pandemic would send home prices spiraling.

Those concerns about a sharp drop in home prices failed to materialize, as a combination of rock-bottom interest rates and the shift to a work-from-home regime sent prices skyrocketing. Average home prices in Toronto and Vancouver have eclipsed $1 million during the pandemic, and the heat has bled into outlying areas, sending prices in some suburbs more than 30 per cent higher.

To know more, visit: https://www.bnnbloomberg.ca/banking-watchdog-launches-fresh-consultation-on-mortgage-stress-test-1.1587688

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