Proposed changes could make getting a mortgage harder

Getting a mortgage could become more challenging if Canada’s banking regulator moves ahead with changes it is bringing to the public.

The Office of the Superintendent of Financial Institutions is outlining a series of proposals, with the aim of getting feedback.

For example, there’s a proposal to make the stress test more strenuous.

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The regulator is also floating limitations on how much debt a mortgage holder can carry, and restrictions on mortgage payments in relation to a borrower’s income.

While the changes are not guaranteed and there’s no timeline for potentially going ahead, the regulator often puts these sorts of proposals to the public for feedback ahead of implementation.

“It’s a consultation phase, but as we’ve seen with most cases with OSFI, anything they’ve put this much effort into usually ends up being close to production, if you want to make an auto industry reference,” said Reza Sabour, a senior advisor with TMG The Mortgage Group.

Sabour believes if these regulations come in, some people laser-focused on home ownership but right on the brink of qualification may end up pursuing a mortgage through alternative lenders.

“A lot of times, the unforeseen consequences of overregulating anything, is that you push people to go around those measures,” Sabour said. “People need homes, people in Canada generally, who qualify using the existing stress testing measures, are well prepared and able to qualify.

“The existing stress test when mortgage rates were just under two per cent, not that long ago was over five per cent. The current average mortgage rate is around five per cent. Most people even two years ago were being stress tested for today’s economic reality and were able to qualify,” he continued.

“The concern is if you’re overregulating at this point, and throwing even more red tape at first-time homebuyers…then you’re really essentially just making it a very unfair housing market to get into.”

Sabour suggests the measures may push rental prices higher as more people are excluded from potential homeownership — though it could also push home prices further down as some people are essentially pushed to the sidelines due to stricter loan requirements.