Cap targets home loans over 4.5 times income as consumer debts mount
Canada's banking watchdog has announced new restrictions on the number of mortgages lenders can issue to borrowers with highly leveraged debt.
The Office of the Superintendent of Financial Institutions (OSFI) is implementing a cap on mortgages exceeding 4.5 times the borrower's annual income.
According to initial reports, the new limit set to take effect in early 2024 likely excludes insured mortgages where borrowers have smaller down payments.
While banks can continue to compete under the new guidelines, this decision will make it harder for some Canadians to qualify for larger mortgages.
OSFI clarified that the move builds on previous measures designed to ensure borrowers can withstand interest rate fluctuations, and it complements bank efforts to strengthen their financial positions.
"This approach allows institutions to continue competing in the same way they have been in the past on a relative basis," the regulator said in an emailed statement.
The new income limit adds to existing measures, including a higher minimum qualifying rate for mortgage approval. Canadian banks have also proactively set aside funds for potential loan losses and bolstered capital reserves in anticipation of economic challenges.
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The Canadian Bankers Association (CBA) said banks are currently evaluating the full impact of the new mortgage restrictions.
"Banks in Canada have a long history of working with their customers to keep their mortgages in good standing," the lobbying group said. "Understanding their customers and adapting to their changing circumstances is a top priority."
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