100 Queen condo downtown . Financial institutions are considering issuing new rules. As China’s money laundering has created bubbles across Canada, many analysts of the Canadian real estate market have spent a lot of time discussing the Canadian real estate market.Please Visit: 100 Queen condo downtown to Get Your VVIP Registration Today!
However, as today’s Globe and Mail (a local Canadian journal) points out, due to a huge price bubble, excessive consumer debt, a sharp tightening of mortgage rules and the prospect of rising interest rates, there may be a “perfect storm” in some parts of the Canadian real estate market.
It is reported that on the regulatory front, the Canadian Office of Financial institutions Supervision ((OSFI)) is considering issuing new rules requiring lenders to conduct effective “stress tests” on borrowers to confirm whether they still meet loan standards even if interest rates rise by 200bp. From a practical point of view, the move will reduce the purchasing power of ordinary Canadians by about 20%.
The Canadian Office of Financial institutions Supervisors proposes that anyone who gets a mortgage from a bank or a bank-funded lender must prove that they can afford an interest rate of at least 200 basis points above the real interest rate. Similar debt ratio “stress tests” have been conducted for borrowers with mortgage default insurance, as well as for most borrowers with floating interest rates and short-term loans.
If the proposal of the Canadian Office of Supervision of Financial institutions goes as planned, the number of mortgages eligible for creditworthy borrowers will be reduced by about 18 per cent, other things being equal. The proposal will have more impact on mortgage borrowers than any rate hike in the history of Canadian banks. Of course, with mortgage rates at decades-low levels, the housing market is likely to move in only one direction.
Moreover, as interest rates rise, it will only magnify the impact of OSFI’s proposal. If you believe the Bank of Canada’s hints and what might happen in the bond market, next week’s interest rate meeting or September meeting is likely to raise floating rates. (although Thursday’s OSFI news may hinder the bank’s plan to raise interest rates.). As for fixed mortgage rates, they have risen sharply since June 6, after bond yields soared by 50 basis points. The Bank of Canada actually took the lead in setting mortgage rates, raising most of its fixed rates by 20 basis points on Thursday morning. Most other lenders have done the same thing, which may only be the first step.
