Stress Test for Borrowers the Latest Hurdle for Mortgages, Canada’s Housing Market

Regulatory imbalance creates opportunity for credit unions, alternative lenders

A sales center sign is shown outside a house under construction in Beckwith, Ont., on Jan. 11, 2018. The mortgage business faces challenges from rising rates and the newly implemented stress test from the federal regulator. The Canadian Press/Sean Kilpatrick

The residential mortgage market in Canada faces a rocky 2018 as it deals with a new stress test for borrower eligibility amid a backdrop of rising interest rates. The fallout from the new rule has implications for housing markets across the country, homebuyers, and lenders who scrap for market share.

The new B-20 guideline from the federal regulator Office of the Superintendent of Financial Institutions (OSFI) that came into effect Jan. 1 “creates a borrowing power reduction for everybody in Canada to the tune of about 20 percent,” said Paul Taylor, president and CEO of Mortgage Professionals Canada, in a phone interview. The guideline is intended to curb lending to riskier (highly leveraged) borrowers given the vulnerabilities of the Canadian housing market.