OSFI has proposed tighter mortgage rules.

Who owns the home you rent? (It's not you.)

"The required mortgage stress test is already pushing marginal buyers into renting, even though they're likely paying about the same amount as for mortgage payments. We’ve seen the number of homes owned by the people who live in them fall, and the number owned by investors increase. That won't get better if qualifying is made that much harder for Canadians."

– Dan Eisner, Founder and CEO of True North Mortgage, discussing the new OSFI proposals on Ben O'Hara-Bryne's podcast (Jan. 13, 2023)

Everyone has to live somewhere. If more Canadians have to rent because they can't qualify (afford) to buy, it's investors who snap up the opportunity to capitalize on a hot rental market. Plus, our recent high immigration numbers add to the pressure of housing supply meeting demand to likely keep rents elevated for the foreseeable future.

Tougher mortgage qualification rules will strengthen the rent-instead-of-buy cycle for fewer Canadians owning their living space.

OSFI's proposed changes that could affect mortgage approvals:

• Raise debt-service ratios (used to qualify mortgage applications)
• Add further loan-to-income restrictions (for example, if you make $100K, you'll only qualify for a home price of $400K or less)
• Reduce or eliminate case-by-case lender exceptions to the stress-test regulations (based on application strength)
• Changes to the stress test itself (despite OSFI deciding to make no changes in December 2022)

Other lender-side limits are suggested, such as restricting the flow or volume of new mortgages approved for higher-indebted households.

OSFI sentiment assumes that home buyers seek to max out their affordability.

"OSFI seems to have an assumption that Canadians will buy as 'much home' as possible," Dan observes. "But we haven't really seen that with our clients." From what he sees, Canadians are very diligent about not taking on too much mortgage.

He explains: "Our True North and THINK Financial clients often come to us with a very good idea of the size of mortgage and payments they can handle. Even if we provide them with higher numbers based on their details, they'll often say, 'this is what I feel I can afford.'"

Canadians, for the most part, aren't going to buy a house unless they feel secure in their jobs and situations. If someone is nervous about their income, that person typically doesn't buy a house until they feel more secure.

No one wants that mortgage payment stress, and our clients tend to make relatively prudent decisions to avoid it.

So why are these rules being proposed?

Would OSFI's beefed-up lender protection help avoid a massive financial downfall? The current mortgage stress test and qualifying rules are already doing a (very) adequate job.

At True North, we do wonder why these rules are being imposed at a time when government overreach could push homes into the hands of wealthier Canadians.

When you apply for a mortgage, you currently qualify using the federally-required mortgage stress test of your contract rate plus 2.0%. And, regulated lenders (most big banks and monoline lenders) already use additional income, credit and debt-servicing limits to determine the strength of your application.

If Canadian lenders are fastidious about their own bottom lines, and home buyers are made to prove they can afford higher payments — what will these proposed changes really accomplish?

When could these changes come into effect?

When OSFI seeks feedback for 'proposed' changes, they're usually not far from bringing down the hammer. We'd likely see any finalized requirements that will impact home buyers brought in during the 3rd or 4th quarter of 2023.

Should the stress test be eased for mortgage renewals?

When coming up to renew their terms, Canadian homeowners need options to improve their mortgage load — not restrictions that keep them stuck with their lenders to pay more.

To move your mortgage to another lender, you'll need to requalify. Even though you've already qualified for your mortgage and are diligently paying it down, the higher the stress test, the more you may be prevented from switching lenders. That means you and many homeowners would be 'stuck' and at the mercy of your existing lender (who can opt to offer an even higher renewal rate).

Industry experts are calling for lower 'renewal' stress-test requirements to more easily allow lender switches and increase homeowner access to the savings options available to them.

Find the right strategy to own instead of rent.

Owning your home can feel like you've got a place to set roots and take on more responsibility, or raise a family, or start down a financial path that puts you on the road to building more personal wealth. Or somewhere you can actually paint to your heart's content.

Regardless of the qualifying factors involved, we can help you determine your best path to homeownership — including great advice on getting your best-possible rate to save thousands, saving up for a down payment and good credit strategies.

Have questions about your home affordability or the federal stress test?

We're here for you, anywhere in Canada. Our friendly experts are real people who really know mortgages. Give us a shout, today.