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Ottawa Tightens Mortgage Lending – Move Impacts People With 20% Down Payments

Federal officials in Ottawa have announced new regulations that would make it more difficult for Canadians to qualify for uninsured mortgages – a move that will impact consumers with down payments of 20% or more.

In guidelines published late Tuesday, the Office of Superintendent of Financial Institutions (OSFI) outlined new rules that will force borrowers to qualify for mortgages based on a potentially higher Bank of Canada five-year posted rate, a restriction that the federal government imposed on all government-backed loans back in 2016.

The new mortgage stress test is the latest in a series of policy changes and rules aimed at ensuring that Canadians at all income levels can afford their homes should interest rates rise. Housing sector analysts expect the mortgage business at Canada’s banks to slow following the new rules issued by OSFI, which come into force on January 1, 2018.

In a report to clients, Rob Sedran, an analyst at CIBC Capital Markets, said the banks are generally supportive of an “engineered slowdown” of the housing market, as opposed to a downturn triggered by an unforeseen event.

``Our only remaining concern is the risk that all these changes will act in concert to create a more pronounced slowdown than any one regulatory body intended,`` wrote Mr. Sedran.

The real estate industry had been lobbying for changes to the final guidelines, worried that tougher borrowing conditions would squeeze more people out of the housing market. OSFI said it received more than 200 submissions from federally regulated financial institutions, financial industry associations, as well as the general public.

Following the review, OSFI tightened a loophole that some have said would have sent buyers into cheaper but more volatile short-term loans to qualify for a mortgage, a key consideration as the Bank of Canada considers further increasing the overnight interest rate that most prime lending is tied to.

“OSFI hasn’t just tapped the brakes, it’s jumped on the brakes with both feet,” said Rob McLister, founder of