Amid rising interest rates that are cutting into buyers' purchasing power, the Office of the Superintendent of Financial Institutions (OSFI) is holding strong on its minimum qualifying rate for uninsured mortgages.
OSFI announced on Thursday that it would be maintaining the qualifying rate for its stress test of either the mortgage contract rate plus 2% or 5.25% -- whichever is larger.
"Maintaining the minimum qualifying rate supports prudent underwriting standards for insured mortgages and builds in a buffer for home buyers in case of changing economic or personal circumstances," said Deputy Prime Minister and Minister of Finance Chrystia Freeland. "Ensuring the stability of Canada’s housing market is essential to protecting Canadians and to upholding Canada’s financial and economic resilience."
The current qualifying rate came into effect on June 1, 2021 and was reaffirmed on December 17, 2021. Decisions about qualifying rates, OSFI said, are "based on data from its ongoing monitoring of federally regulated financial institutions," and "analytical work on system-wide and sectoral developments."
All throughout last year, the Bank of Canada's overnight lending rate sat at its historic low of 0.25%. With variable and fixed-rate mortgages hovering around 2%, borrowers were having to qualify at the stress test's mandated 5.25%. Now, with mortgage rates around 5%, borrowers are having to qualify at much higher rates, above 7% in some cases.
Although some were hopeful for a change to the qualifying rate, RBC Economist Robert Hogue warned earlier this month that OSFI was likely to err on the side of caution during these uncertain times and keep the 2% buffer as part of the stress test.
In a press release, OSFI said it will launch a review in January of Guideline B-20, which includes the minimum qualifying rate as well as other mortgage underwriting standards. But OSFI went on to note that "We expect to leave the MQR at its current rate pending the outcome of the review, although the economic environment could result in a more immediate change."
“We will continue to monitor the housing market and review the insured minimum qualifying rate as warranted," Freeland said. “Our government believes that everyone should have a safe and affordable place to call home, and we will continue the ongoing work on our comprehensive plan to build more homes and make housing more affordable across the country.”