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NEW GUIDELINES FOR BANKS The Office of the Superintendent of Financial Institutions (OSFI) is collecting feedback on proposed changes to its lending restrictions in order to deal with increased lending risks in real estate. The three proposals are loan-to- income (LTI) and debt-to-income restrictions, debt service coverage limits, and interest rate affordability stress tests. OSFI is considering adopting an LTI at the lender level threshold of 450%, meaning borrowers could not borrow more than 4.5 times their annual income. They are also considering a gross debt service limit of 39% and total debt service limit of 44%
for uninsured mortgages, where there are no limits currently. Lastly, OSFI has proposed introducing higher affordability stress tests that may be applied differently for various
risk and product characteristics. If any or all of these proposals are
implemented, they could serve to reduce the borrowing power of potential home buyers. Given the manageable levels of debt-service ratios currently, and low levels of mortgage arrears, these proposed changes aren’t likely to be needed, though a sustained period of high interest rates could change these metrics in the future.
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