Just over a year ago, the mortgage stress test was imposed in Canada. The result was that many Canadians who had previously qualified for a conventional mortgage no longer made the cut, failing to demonstrate that they could support payments at rates two percentage points above what was offered by conventional lenders.
The Office of the Superintendent of Financial Institutions first implemented the B-20 stress test on Jan. 1, 2018 to uphold the safety and stability of the Canadian banking economy, and to protect the taxpayers who were funding the banks’ lending activity. For a long time, the Canadian economy sustained an upward trajectory of credit, resulting in a rapid housing price growth in Vancouver and the Greater Toronto Area.
The stress test was applied with the intention of protecting Canadians from taking on more debt than they could handle, particularly in the case of unforeseen life events like a divorce, a death or medical issue. But since its imposition, Vancouver and Toronto’s previously hot housing markets have cooled significantly.
A better approach to increasing the regulation of alternative lenders is to promote transparency through existing regulatory frameworks that apply to alternative lenders, such as provincial mortgage broker acts, securities acts, consumer protection acts and others.