The Office of the Superintendent of Financial Institutions (OSFI) released revised "B-20" guidelines for residential mortgage underwriting at federally regulated financial institutions. As was widely expected, the updated 'stress test' will be applied to all new mortgages beginning in January 1, 2018. Currently the test applies only to mortgages requiring insurance (i.e. those with low down payments) and those whose term is less than five years.
This change requires that borrowers qualify for mortgages at the greater of the Bank of Canada's five-year benchmark rate or the contracted rate plus 200 basis points. For reference, as of this morning, the Bank of Canada posted rate was 4.89%. It should be noted that OSFI will not apply the more stringent requirements in the case of mortgage renewal.
While the extension of qualification guidelines will likely draw the most attention, OSFI introduced two other changes:
Loan-to-value limits must be established and lenders will be required to ensure that they "are reflective of risk and are updated as housing markets and the economic environment evolve"
Lending arrangements designed to get around loan-to-value limits are restricted with the updated guideline explicitly forbidding 'co-lending' or 'bundling' arrangements.