Last Updated on October 24, 2023 by Neil Sharma
The Office of the Superintendent of Financial Institutions (OSFI) is that’s slated to take effect June 1 and the likely result will be a surge in mortgage originations in the alternative channel.
Although the comment period for the implementation of Guideline B-20, as the stress test is known, ends May 7, it’s widely believed to be a nominal gesture. With the B-20 amendment all but guaranteed, mortgage broker Daniel Johanis says affordability on mortgages originated with the Big Five will decline.
“It’s unfortunate that when B-20 previously came into play in January 2018, we saw a huge drop in affordability for Canadians and it doesn’t make sense for conventional borrowers,” Johanis told CREW. “You have 20% or more equity sitting in your property, and you’ve shown the ability to save money for purchases when you put 20% or more down, but you get slapped on the wrist by this policy that’s supposed to help protect your affordability. It doesn’t make sense.”
The stress test will increase the qualifying rate from 4.79% to 5.25%, which, Johanis added, reduces conventional mortgage affordability by an average of 5%, and as a result, the number of borrowers who originate their mortgages in the alternative and private channels should see a notable increase.
“It’s going to move them towards alternative lenders, possibly provincially-regulated credit unions, because we’ve seen how they can skip stress tests by qualifying on contract rates and then with MICs [mortgage investment corporations]. It’s not doing anything except making it a little more expensive for borrowers to get into the game.”
Leah Zlatkin, a mortgage broker and expert with LowestRates.ca, agrees with Johanis’s assessment and anticipates that there will be a flurry of activity in the mortgage space ahead of June as more homebuyers try to get ahead of the OSFI decision.
However, she cautions homebuyers not to behave too hastily, because while it appears the banking regulator is trying to cool the housing market, that is not in fact what it exists to do.
“Cooling the housing market is not the bank’s main mandate, so we’re unlikely to see an increase in the prime interest rate soon,” she said. “The housing market is not really in trouble, in terms of stability. Even an unexpected rate hike would likely not lead to a crash. Canadian homebuyers need to keep a cool head, not make emotion-based blind bids on homes and work with experienced mortgage and real estate professionals to successfully navigate the current market.”
Although Johanis says that forcing copacetic borrowers out of the A channel isn’t fair, originating mortgages in the B channel won’t set them back much because all of the home equity their homes accrue will be enough to offset their higher borrowing rate.
“You make it back by the first year.”
Neil Sharma is the Editor-In-Chief of Canadian Real Estate Wealth and Real Estate Professional. As a journalist, he has covered Canada’s housing market for the Toronto Star, Toronto Sun, National Post, and other publications, specializing in everything from market trends to mortgage and investment advice. He can be reached at neil@crewmedia.ca.
