The stress test for uninsured mortgages will remain the greater of 5.25% or the bank’s contract rate plus two percentage points, the Office of the Superintendent of Financial Institutions said. — Bloomberg
TORONTO: Canada’s banking regulator maintains the qualifying test it imposes on mortgage borrowers, keeping pressure on the nation’s prospective home buyers.
The stress test for uninsured mortgages, officially known as the minimum qualifying rate, will remain the greater of 5.25% or the bank’s contract rate plus two percentage points, the Office of the Superintendent of Financial Institutions said in a statement.
“The minimum qualifying rate for uninsured mortgages has produced a more resilient residential mortgage financing system which has been characterised by low default and delinquency rates,” Peter Routledge, the superintendent, said in the statement.
“This discipline contributes to the resilience of Canada’s financial system,” the statement added.
Canadian regulators imposed a mortgage stress test during a long period of falling interest rates to ensure borrowers could handle potentially higher borrowing costs when the housing market was booming.
Property values fell as the central bank aggressively hiked rates to bring inflation to heel, and transactions have slowed markedly.
Still, Canada’s struggling housing market has so far caused relatively little financial distress for borrowers, which can in part be attributed to the stress test.
Mortgage rates are now around 7%, and though markets and economists expect the Bank of Canada’s next move to be a cut, some in the real estate industry have been calling for an end to the stress test.
The economists said this could alleviate eroded housing affordability, which is at decades-low levels.
“The minimum qualifying rate provides a buffer for home buyers and protects Canadians from changing economic circumstances.
“This includes increased interest rates and unforeseen personal circumstances,” Finance Minister Chrystia Freeland said in a statement. — Bloomberg
