Mortgage rule updates could disqualify 10% more of buyers in 2018, says Bank of Canada

The Bank of Canada (BoC) delivered a review of the country's financial system on Tuesday that addressed the recently updated federal mortgage rules and forecasted that they would lead to an even smaller pool of potential home seekers gaining buying approval in 2018 than there were this past year. It hypothesized a probable 10 per cent decrease in eligible buyers, with that number likely rising up to 12 per cent in the competitive Toronto and Vancouver markets.

Announced back in October, the main change being implemented as part of the Office of the Superintendent of Financial Institutions' (OSFI) mortgage rule updates is that the stress test implemented in 2016 would also apply to uninsured mortgages, instead of just insured ones. The move is a proactive in nature, aimed at ensuring that big mortgages don't fall into the hands of unprepared buyers.

"When you look at some of the other economies that have gotten into trouble, notably the United States in 2007 and 2008, it was because the mortgage lending was too lax," said Todd Hirsch, chief economist of ATB Financial. "What the policy-makers are trying to do now is make sure we don't get into that situation here—especially Toronto and Vancouver—where there have been a lot of people taking on an awful lot of mortgage debt."

The good news is that the plan appears to be working. Despite the fact that some buyers are now facing a tougher road to borrowing, the BoC noted in its review that the tightened lending rules, combined with higher mortgage rates, have helped to cool the housing market and discourage riskier borrowing.

There is a risk that borrowers on the edge of eligibility may choose to work around these restrictions by turning to alternative, non-federally regulated lenders who can offer dicier loans with longer amortization periods. However, those lenders occupy a relatively small share of the market, and it is more likely that buyers simply choose smaller homes or put off buying the house until they can afford to put more money down.