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15 Jan

Bank of Canada: New Mortgage Rules Could Disqualify 10% of Buyers with Big Down Payments

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Posted by: Frederic Pichette

The Canadian federal government is introducing another round of new mortgage rules to help cool markets like Vancouver and Toronto. The new rules could disqualify around 10% of prospective buyers who have down payments of 20% or more, according to the Bank of Canada.

Key Takeaways

  • Bank of Canada is tightening lending regulations
  • New rules could disqualify 10% of prospective buyers with big down payments
  • Those buyers would be subject to passing a mortgage stress test
  • Main threats to Canadian housing are still rising household debt and overheated house prices


After a strong round of tightening mortgage lending regulations and raising interest rates, the Canadian federal government is introducing another set of regulations that targets buyers with down payments of 20% or more.

The new regulation would require those buyers to pass a stress test, in which they must prove they could still afford their mortgage payments if raised were raised two percentage points. The regulation, which already exists for buyers with down payments of 20% or less, would affect about $15 billion a year in new borrowing.

Although the new changes are not as drastic as previous regulations and rate increases, they could still disqualify up to 12% of borrowers in Canada’s two hottest markets – Vancouver and Toronto. Any dramatic changes to the housing market will likely require a significant rate increase. “The new rule will have some impact, but it is unlikely to derail the housing market on its own. We’ll need higher rates for that,” said Bank of Montreal economist Benjamin Reitzes.

Some are interpreting this latest round of regulations as a sign that Canada’s hottest housing markets still need federal help cooling down. The Bank of Canada, however, recently published its first review in a long time that made some optimistic market predictions. “The Bank of Canada sees things moving in the right direction,” noted Toronto-Dominion Bank economist Brian DePratto.

“Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch vulnerabilities closely,” added Governor Stephen Poloz in a statement accompanying the bank’s Financial System Review.

Many economists backed up the positive sentiment, saying all the new regulations and change in the past year could curb home sales in 2018. The Canadian Home Builders’ Association expects recent changes to reduce total house transactions by 10 – 15% next year.