Mortgage brokers argue that given the slowdown in the housing market, the Canadian banking regulator should relax its "stress test" qualifying rate for mortgages and make it easier to qualify for a mortgage. This week, the Office of the Superintendent of Financial Institutions issued a statement in which it alluded to the possibility that it might make "adjustments" to its qualifying rate before the end of the year.

A review of the qualifying rate is performed by the regulator and then communicated to the general public every December, in advance of the hectic spring housing season that follows the following year. This week, however, the office, which is an independent federal agency that is responsible for supervising hundreds of financial institutions and over a thousand pension plans in Canada, suggested that an announcement may be forthcoming before the end of this year.

According to a statement released by the regulatory body on Thursday,“Throughout the rest of the year, OSFI continually monitors the Canadian housing market and mortgage practices, and may make adjustments at any point if necessary for the health of the Canadian lending industry.”

Some people working in the real estate industry see this as a sign that the office ought to take action and, in all likelihood, will do so given the rise in interest rates that has occurred this year and the resulting decrease in home sales.

The most recent statistics released by the Toronto Regional Real Estate Board indicate that the housing market in the region reached its highest point in the month of February when houses and condos sold for an average of $1.33 million.

The average price in the region dropped to $1.25 million as a result of a number of factors, including the Bank of Canada's decision to raise interest rates in April and the expectation that they will do so again soon. Despite this, prices are still 15% higher than they were at this time last year.

“The market is softening, prices are coming down. They (OSFI) did the stress test to cool the market. They don’t need any cooling of the market anymore. It’s already there now,” said mortgage broker Kim Gibbons.

In order to avoid having to pay for mortgage insurance, homebuyers are required by the rules to demonstrate that they are able to afford mortgage payments at an interest rate of 5.25 percent or their mortgage contract rate plus two percent, whichever is higher. Homebuyers who have made a minimum down payment of 20 percent are exempt from this requirement. They were implemented in 2016 and 2017 with the goal of reducing overall market activity and preventing buyers from feeling overly pressured by rising interest rates.

According to comments made by mortgage brokers in Thursday's edition of the Star, the current average interest rate for mortgages with fixed terms of five years ranges from 4.19 to 4.25 percent. A borrower would need to demonstrate that they are capable of paying an interest rate that is as high as 6.25 percent in order to qualify for a loan with the requirement of a two percent plus contract. Gibbons believes that this is unreasonable and that it "doesn't make sense" given the current state of affairs.

“As things stand now they have got to do something,” Gibbons added. “Clients are going to alternative sources of lenders, credit unions where you don’t have to do two percent above the contract rate to qualify. People can qualify with credit unions much easier,” she said.

“The stress test takes away about 20 percent of your purchasing power. Not always, but that’s kind of the rule.”Mortgage broker True North Mortgage, headquartered in Toronto, and its chief executive officer Dan Eisner are both of the opinions that the Office of the Superintendent of Financial Institutions will step in before the end of the year.