Government Announces Changes to the Qualifying Rates for Mortgages

On Thursday, May 20, the Office of the Superintendent of Financial Institutions (OSFI) announced it will move forward with a proposed new qualifying rate for uninsured mortgages, reinforcing the mortgage underwriting principles outlined in Guideline B-20. As of June 1, 2021, the qualifying rate for all uninsured mortgages should be the greater of the mortgage contractual rate plus 2%, or 5.25%. The change raises the minimum qualifying rate by 46 basis points from the current 4.79%.

Deputy Prime Minister and Minister of Finance Chrystia Freeland, then announced the federal government will align with OSFI by establishing a new minimum qualifying rate at the same level for insured mortgages.

As the Canadian economy continues its shift into recovery following the impacts of the COVID-19 pandemic, additional economic and fiscal prudence on the part of government agencies is not unexpected.

The Canadian Real Estate Association (CREA) participated in the consultation and argued for a regionalized approach prior to implementation of this new qualifying rate for uninsured mortgages. The government’s response can be found in the annex from OSFI.

Both OFSI and Minister Freeland have indicated they will review the impact of the changes before the end of the year and adjust as necessary. CREA will independently monitor impacts in the resale housing market and continue to advocate on behalf of REALTORS and their clients.

CREA is, however, glad to see an acknowledgement by the federal government that they need and are willing to work with provinces, territories, and municipalities to address the growing imbalance between supply and demand. REALTORS have advocated for a supply-first approach in recent years, and the federal government has taken note.

When delivering their opening statement discussing the latest issue of the Bank of Canada’s Financial System Review, the Governor of the Bank of Canada, Tiff Macklem, reminded Canadians that “interest rates are unusually low” and that “borrowers and lenders both have roles in ensuring that households can still afford to service their debt at higher rates.”