Will the mortgage stress test get harder?
In January 2023, OSFI (The Office of the Superintendent of Financial Institutions) proposed changes that would further tighten the required mortgage stress test and its rules.
It's now the 3rd quarter of 2023, and OSFI is imposing a rule on November 1 for re-advanceable home equity lines of credit, limiting how much borrowing room is opened up to a homeowner after their principal balance is drawn down (a maximum of 65% Loan-to-Value rather than the current 80% LTV allowed).
And big banks now have to hold more capital in reserve for their fixed-payment variable rate mortgages to account for clients' extended amortizations and potentially higher risk of default.
But there's been no 'discernible' action readied to increase the stress test to make mortgage qualification even harder. In fact, OSFI recently mentioned a 'known' rule that insured mortgages can be qualified using the contract rate and not the stress test. Since then, lenders have been tripping over themselves to add this qualification change to their mortgage approval process.
There's still a possibility that more tweaks may be coming at OSFI's year-end meeting in December. But it may consider the higher interest rates a limiting-enough measure for Canadians applying for a mortgage to keep banks protected.
Does True North anticipate mortgage activity to decline?
The higher rate environment has the housing markets in for cooling in sales and price growth, on top of a typical seasonal slowdown (until things are expected to pick up again next spring). Though with our access to great rates and products, we're still attracting many mortgagees who look to lower their monthly costs.
Despite the tepid activity projected, more sellers have moved into the listings (Alberta seems to be an exception), offering more choices for buyers who are looking or need to move.
But higher immigration, increased interest from first-time buyers perturbed by higher rents, and lower housing inventory available may still combine to keep a floor under prices in some regions.
Home buyers and owners hold on in 2023
Weathering these fast rate hikes hasn't been that easy for some of our clients (fortunately, many are still hanging on — we've helped many realign their mortgage budgets and needs). First-time home buyers especially need expert advice to set them on a path to successful homeownership amid higher rates.
Some Canadians are managing to adjust to rates as they are now, and trying to find the right rate and term at renewal to keep their financial goals on track.
Regardless, we want to see that home buyer conditions on purchase offers stay in 'vogue' (no mad resurgence of no-condition or bully offers, or fierce bidding wars), so Canadians can better protect themselves from financial surprises or setbacks.
Owning a home is a tremendous source of pride in Canada. I created True North to help clients appreciate having access to a better mortgage experience, saving them thousands with their best rate and mortgage choice.
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