Banking regulator sees potential risks in high home prices, debt loads.
The Office of the Superintendent of Financial Institutions (OSFI) is set to finalize changes to residential lending guidelines (B-20) by the end of this month. They are proposing changes that will see a ‘stress test’ applied to those borrowers buying a home with a down payment of 20 per cent or more. The intent is to provide the same assurance as insured mortgages that should interest rates rise, borrowers will still be able to carry the debt. Also in the plans for change is a prohibition of co-lending arrangements. These are instances where borrowers are securing traditional lending up to 80 per cent of the house value, and seeking secondary financing beyond that, effectively allowing a borrower to bypass default insurance and still put less than 20 per cent down. If these regulations are put into place at the end of this month, we should see them come into force two or three months afterward.
This may be to much change to fast, hurting home buyers in the process.
Currently, home values are stabilizing in most regions of Ontario and Canada. We are in a balanced real estate market. Gradual home price appreciation is good for borrowers and lenders, since an improvement in one’s net work is positive!
‘Stress testing” those borrowers who have more than 20 per cent as a down payment or equity in their homes is unnecessary because the chances of default are extremely low.
When we look at these changes from our side of the fence, it always begs the discussion as to what debt is actually the problem in our households. Mortgages can actually be the safest form of borrowing as they are collateralized against the home and the lending guidelines are already quite meticulous. Our real focus should be on why people are accumulating consumer debt. Unsecured debt is among the easiest to acquire and boasts the highest interest rates while also being the most volatile. For every dollar of household disposable income in Canada there is $1.68 in credit market debt. Incomes haven’t kept up with the general costs of living and most families are only surviving on two incomes, few are thriving.
At the end of the day, regulators will make changes as they see fit and we will be here to guide our clients through every step of the way! If you have any questions or concerns about changing landscapes, or would like to get pre-approved or refinance before the new changes are in place, call me anytime!
Sandra Lastovic || 519.763.3900 ext 1001