Canadians looking to buy a home before new mortgage rules sap their purchasing power may not have a much time — or as many options — as they think, warn market observers.
While the country’s banking regulator has set January 1, 2018 as the date for new stress tests to take effect, the expectation is that many federally regulated lenders will usher in the changes before then.
“Just a word of advice for anyone looking to purchase or refinance in the next couple of months: the banks could move up the policy date,” Samantha Brookes, CEO and founder of Mortgages of Canada, told BNN in an email.
“My guess is we will see some of the lenders start adding the stress-test requirements in December.”
On Tuesday, the Office of the Superintendent of Financial Institutions tightened rules governing the mortgage market – known in the industry as the B-20 guidelines.
Stress tests meant to ensure borrowers can afford their homes at a higher interest rate were extended to buyers with a down payment of 20 per cent or more – the uninsured mortgage space.
RateHub.ca suggests it could cut a family’s purchasing power by up to 21 per cent, once the new test is in place.
While the deadline is January 1, OSFI made clear on Tuesday it expects the banks it regulates to comply, where possible, with the “principles and expectations set out in this guideline as of the date of this letter.”
That said, industry observers say it will likely take a little time for banks to change their systems and policies. That still “allows enough time to pull demand forward,” Bruce Joseph, principal broker at Anthem Mortgage, told BNN in an email.
“This could give the appearance of a stronger market in the next few weeks,” said Joseph.
“The first quarter of 2018, therefore, has a real potential of looking awful in terms of prices, volumes - not only from the decrease in demand from credit tightening but also from pulling demand forward.”
Savvy buyers may know that OSFI’s rules apply to federally regulated financial institutions, and those banks are not the only lenders in town.
Credit unions, as a general rule, answer to provincial regulators. That has raised the spectre of buyers simply crossing the street and taking their business to a credit union to avoid the new stress test.
Still, it might not be that easy.
“B-20 will impact [credit unions] to the extent that provincial regulators follow OSFI’s lead, or to the extent that credit unions look to OSFI guidance as best practice – this is common,” Martha Durdin, president and CEO of the Canadian Credit Union Association, told BNN in an email.
“Credit unions that securitize loans are also impacted by B-20 in that market participants will likely want to only buy B-20 compliant mortgages.”
There’s evidence that credit unions are already thinking along those lines.
Meridian, one of Ontario’s larger credit unions, says it’s reviewing B-20 even though it “does not technically apply to our business.”
“Meridian will consider that guideline as we are a prudent and responsible lender with a strong balance sheet,” Meridian president and CEO Bill Maurin told BNN in an email.
The B-20 guideline also represents yet another policy move in the wake of numerous interventions aimed at cooling and stabilizing the country’s real estate markets.
While stress tests are aimed at bolstering financial stability, there’s “concern that there’s too many things happening at once,” Robert Sedran, financial services analyst at CIBC Capital Markets, told BNN in an interview.
“It’s the one thing that makes us a bit cautious on what they’re doing right now,” said Sedran.
“We think we’re still okay, it’s just the concern becomes throwing too much at (the market) at the same time.”