OTTAWA — The federal banking regulator is proposing increased requirements to the stress test facing homebuyers with uninsured mortgages as it looks ahead to a return to pre-pandemic financial conditions with higher interest rates.
The proposal from the Office of the Superintendent of Financial Institutions would set the qualifying rate for uninsured mortgages at the contracted rate plus two percentage points or 5.25%, whichever is higher.
That’s a change from the current rules of the bank rate plus two percentage points or the Bank of Canada’s five-year benchmark rate, which currently sits at 4.79%.
Any buyer whose down payment on a home is less than one-fifth of the purchase price must undergo the stress test to demonstrate they could still afford mortgage payments in a higher rate environment. The measure adds a margin of safety for borrowers.
Rock-bottom interest rates, increased demand for homes and a shortage of supply have heated housing prices and prompted calls on the federal government and regulators to tighten rules to cool the market.
OSFI said current housing market conditions have the potential to put lenders at increased financial risk should economic conditions deteriorate.
Increasing the qualifying interest rate would add a margin of safety so borrowers will still be able to make mortgage payments if rates rise, the regulator said.
— with files from Tara Deschamps
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