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In
an emailed statement, the Office of the Superintendent of
Financial Institutions (OSFI) said it is implementing a cap on
the number of mortgages a bank can lend that are larger than 4.5
times a borrower's annual income.
The loan-to-income, or LTI, measure applies to individual banks
and is designed to prevent the buildup of highly leveraged loans
during low interest rate periods, OSFI said.
The banks will have to monitor and manage their portfolio of
underwritten mortgages every quarter, it added.
OSFI said it had considered banks' business models and that the
portfolio limit, specific to each institution, would not bind
any one bank's underwriting method.
"This approach allows institutions to continue competing in the
same way they have been in the past on a relative basis," it
said.
The Globe and Mail, which first reported the news, said the new
income limit is expected to take effect in the first quarter of
next year, adding it would not apply to insured loans in which
the borrower has to pay for mortgage insurance because their
down payment is less than 20% of the property's purchase price.
The banking regulator has already introduced new rules including
a minimum qualifying rate that is 2% higher than the borrower's
agreed mortgage rate to ensure consumers can withstand future
interest rate changes.
Canada's big banks have also set aside more funds to cover loans
that could potentially turn sour since the central bank began
raising interest rates and the regulator has required to banks
to show a strong capital position.
"Banks in Canada have a long history of working with their
customers to keep their mortgages in good standing," Canadian
Bankers Association, a top lobbying group said.
"Understanding their customers and adapting to their changing
circumstances is a top priority. The industry is still assessing
the impact of OSFI's policy."
(Reporting by Ismail Shakil in Ottawa and Nivedita Balu in
Toronto; editing by David Ljunggren and Nia Williams)
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