October 17, 2017
Data Release: OSFI extends ‘stress test’ to all new mortgages
As expected, OSFI has expanded the scope of the ‘stress test’ to include anyone taking out a mortgage at a federally regulated institution regardless of term and whether they are insured. Perhaps underscoring the logic behind the change, OSFI bank data for August of this year showed insured mortgages (which were already subject to the stress test) were down 4.5% year-on-year, while uninsured mortgage credit grew 17.3%. While this is partly related to the rising prices of Canadian real estate, with more and more of it priced above the insurance caps, it also likely reflects the skew stemming from the past stress test requirements. As such, today’s change, alongside the explicit guidance around co-lending arrangements, will together help address the shift as far as those borrowing from federally regulated institutions.
As discussed in our regional housing outlook, broadening the stress test will likely further slow housing activity, depressing demand by 5% to 10% once implemented, with some pull-forward of activity likely to take place ahead of the January 1st implementation date. Price growth will also be impacted, with these changes expected to exert a drag of between 2% and 4% over 2018. On balance, these changes should help enhance the resilience of the Canadian banking system in a rising interest rate environment.
Source: TD Economics
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