You’d be forgiven for not realizing that November 1 was B-20 Day. Odds are it wasn’t marked on your calendar, and unless you count following banking regulations among your hobbies, it’s a safe bet that the new mortgage guidelines didn’t make much of splash in your day. Regardless, the new regulations affect every Canadian homebuyer, so it’s a good idea to familiarize yourself with what they are and how they relate to you.
The B-20 mortgage guidelines are underwriting regulations from the OSFI concerning federally-regulated lenders. The new guidelines, which were written and released in June, officially went into effect for major banks on November 1. These rules affect everything from proof of income requirements to down payments.
The biggest effect of the B-20 regulations, however, is how they will impact the difficulty of getting a loan for prospective homebuyers. One of the biggest changes concerns tougher qualifying rates for conventional mortgages. Mortgages under five years usually require that a borrower qualify for a higher rate than their actual mortgage in order to prove they can handle the financial responsibility. Under the new guidelines, qualifying rates will be taken from the Bank of Canada’s five-year benchmark rate, making qualifying more difficult and forcing borrowers into longer loans.
Other changes include stricter rules concerning how to calculate a borrower’s monthly payments, heating costs and debt ratios.
Another area experiencing changes affects consumers looking to take out a home equity line of credit (HELOC). Future HELOCs will have their maximum loan-to-value drop from 80 percent to 65 percent.
These new restrictions will be far-reaching. Canadian Mortgage Trends recently quoted a treasury executive who said it is inevitable that most lenders will have to adopt the B-20 mortgage guidelines, not just federally-regulated banks.
“My view is that all non-bank lenders other than credit unions will be subject to B-20, it’s just a matter of time,” said the anonymous source. “All other lenders are selling loans to federally-regulated financial institutions (FFRIs), either on the FI’s balance sheet or through the Canada Mortgage Bond (CMB) program. Those lenders would all be subject to B-20.”
The B-20 regulations are just the latest in a long line of initiatives to stem the flow of Canadian borrowers looking to take advantage of low mortgage rates. While industry analysts claim such restrictions will hurt the market, policymakers are betting that tougher rules will prevent an economic collapse brought on by overwhelming debt. For good or ill, one thing is certain: It has become that much more difficult to take out a mortgage.