Banking regulator launching consultations on mortgage stress test as debt risks rise – National | Globalnews.ca

Canada’s banking regulator is launching public consultations on existing and newly proposed mortgage lending rules as it says loan risks have increased considerably since the start of the COVID-19 pandemic.

The Office of the Superintendent of Financial Institutions (OFSI) says the consultations around the B-20 mortgage underwriting rules will focus on measures to ensure borrowers will be able to manage their debts.

A key part of the existing rules is the minimum qualifying rates, otherwise called the mortgage stress test, which forces borrowers to qualify for a mortgage at a 5.25 per cent interest rate, or two percentage points above the prime rate, with the higher of the two being the threshold.

OFSI says that while that safeguard has been helpful, more measures might be needed to reduce mortgage lending risks and has proposed several options.

It says it is looking for feedback on the potential to test borrowers on a loan-to-income and debt-to-income basis, measures that would restrict debt payments as a percentage of borrower income and an interest rate affordability test that would expand on the current stress test model.

Earlier this week Peter Routledge, head of OFSI, said at RBC’s bank CEO conference that he wants to be proactive on addressing concerns as systemic vulnerabilities including high debt levels have grown in recent quarters.

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