Mortgage stress tests unchanged despite housing market slowdown
Mortgage stress test levels were left unchanged Thursday as the federal banking regulator and Department of Finance favoured a cautious approach over calls to relax tests to help a slowing housing market.
The Office of the Superintendent of Financial Institutions (OSFI) kept the minimum qualifying rate for uninsured mortgages at the greater of the mortgage contract rate plus two percentage points, or 5.25 per cent, while the finance department followed suit with the same rate on insured mortgages.
The maintenance of the stress test levels, which at current interest rates force some borrowers to qualify for rates above eight per cent, comes as the Bank of Canada is widely expected to be at or near the end of its aggressive rate hike cycle.
But while the levels borrowers are being forced to qualify at are higher than analysts expect interests rates will actually go, OFSI maintains that the stress test is meant to protect against economic stresses generally, not just interest rates.
“In an environment characterized by sustained high inflation, rising mortgage interest rates, and potential risks to borrower income, it’s prudent that lenders continue to test borrowers for adverse conditions,” said Tolga Yalkin, OFSI’s Assistant Superintendent of Policy, Innovation and Stakeholder Affairs, during a media briefing.