New mortgage rules made household lending a bit trickier for the first quarter of 2018, shared Bank of Canada. This development regarding the OSFI mortgage stress test that started in January led to more Canadians going to loan sharks and to private lenders because they can’t qualify for a bank mortgage.
A survey by the Bank of Canada’s financial institutions showed that the tighter household lending conditions for the first quarter of 2018 is linked to the new mortgage rules. The survey usually just report on business loans but have recently included household lending.
The Bank of Canada added that the tightening in mortgage lending resulted from changes to Guideline B-20 (about the underwriting standards) which primarily affected non-price conditions for HELOCs (home equity lines of credit) and low-ratio mortgages. The tightening also affected price conditions for mortgages because the spreads charged to borrowers increased together with mortgage rates.
These developments may be a preview of what other changes will take place. Canada’s biggest lenders are saying that it is still too early to tell what other impacts are in store, a sentiment shared by Dave McKay, president and chief executive officer of the Royal Bank of Canada.
HELOC on the Rise?
The Bank of Canada’s survey shared that the demand for low-ratio mortgages and HELOCs experienced an increase during the survey period. It should be noted that the new B-20 rules regarding having a stress test for uninsured mortgages may also affect low-ratio mortgages because they fit the criteria for uninsured loans.
The survey also shared that there are increases and decreased in demand affected by regulatory changes that were reported by institutions. The figures could have been due to expectations of higher interest rates as well as borrowers having placed an application prior to the implementation of the B-20 changes. These are about the same findings reported in March in connection with the Bank of Canada’s rate-setting decision wherein people pushed to pull forward before the implementation of new mortgage guidelines and other related policies.
The BOC said that the survey respondents also expect that the current quarter will reflect a decreased demand for HELOCs and low-ratio mortgages. It noted that the demand for such tailed off after regulatory changes were introduced late 2016.
Business Lending Developments
The survey found that overall business lending conditions eased slightly during the surveyed period. This was driven by increasingly intense competition for corporate borrowers as the demand for business credit increased in the survey period.
The questions used for the business lending and the household lending portions of the survey reflect each other and the respondents were 18 financial institutions. They were asked about their lending practices, demand for credit, as well as changes noted from the prior quarter.
Not sure about how the developments shared will affect your existing mortgage or plan to apply for a new one? Contact us at Mortgage Central Canada and our professional mortgage brokers would be happy to assist you with your mortgage concerns regarding the latest mortgage news.