Getting a mortgage might get a lot harder

The country’s banking regulator has proposed creating more stringent lending rules that would make it more difficult to qualify for a mortgage.

What’s new: The Office of the Superintendent of Financial Institutions, a government agency that oversees federally regulated banks, is looking to reshape mortgage industry guidelines to ensure borrowers have enough money to cover large loans and rising interest payments.

  • The move is intended to protect the broader financial system from risks caused by high debt loads.

The new proposed rules include:

  • An additional interest-rate affordability stress test to gauge a borrower’s ability to afford an increase in their debt repayment rates.

  • Limits on how many loans banks can make to people with a high ratio of debt to income.

  • Tightening limits on how much debt service costs someone can take on based on their income.

Why it’s happening: Canadians’ debt has grown substantially over the past year, and a lot of that is in mortgages. The OSFI is concerned that banks could face a financial blowback since they hold 80% of residential mortgages if defaults begin to tick upwards. 

Yes, but: Some experts predict the new guidelines will create a flood of homebuyers making “panic” purchases before the new restrictions come into effect, another shakeup for the already volatile housing market. 

Why it matters: Analysts estimate that these new rules could affect 5 to 10% of borrowers, some of whom might no longer qualify for a mortgage at all. 

  • For others, it will require a larger downpayment, accepting a smaller loan amount or using an alternative lender with higher interest rates.

Bottom line: The OSFI wants your input on the potential changes to the guidelines, and you can tell them “yay” or “nay” via email until April 14.