Getting a mortgage isn’t getting any easier

As interest rate hikes drive up borrowing costs and, in turn, lower housing prices, many Canadians are asking for a break when it comes to their mortgage qualifying rate. 

Canada’s top financial regulator responded with a firm: “Nah, we’re good.”

Driving the news: The Office of the Superintendent of Financial Institutions (OSFI), which oversees federal mortgage rules, confirmed it will not loosen its borrowing requirements, per Bloomberg.

Why it matters: Cooling demand (by making it harder to make big purchases) is the entire point of interest rate hikes, which may a bitter pill to swallow for aspiring homeowners.

Catch up: To get approval on a mortgage from a federally regulated financial institution right now, you must be able to pay back the loan at an interest rate of either 5.25% or 2% above the rate you negotiated with the lender—whichever is higher. It’s called a ‘stress test.’

Some homebuyers, including those with variable-rate mortgages or mortgages soon up for renewal, have said that the current standard is excessive, given already high interest rates. Organizations like Toronto Regional Real Estate Board are backing them.   

  • As mortgage rates are usually dictated by the Bank of Canada’s overnight interest rates (sitting at 3.25% right now), these standards have become difficult to meet. 

Yes, but: The OSFI argues that, actually, tough requirements are even more important in uncertain economic conditions so homebuyers don’t bite off more than they can chew.

Zoom out: More Canadians may start turning to credit unions for their mortgages, as they are not subject to the OSFI, but provincial regulations, which are usually less severe. 

Last quarter, mortgage balances for credit unions increased at a faster pace than Canada’s big banks for the first time since the pandemic began.