Stress test still binding
Canada’s mortgage stress test remains a hard qualification hurdle and continues to constrain originations and refinancing activity, with no near‑term regulatory relief signalled by policymakers. That constraint keeps marginal borrowers out of the market and reduces prepayment elasticity for lenders. (westernstandard.news)
OSFI’s Jan. 29, 2026 update leaves the minimum qualifying rate for uninsured mortgages at “the greater of the mortgage contract rate plus 2% or 5.25%,” keeping the two‑point buffer and 5.25% floor in force. (osfi-bsif.gc.ca) The Bank of Canada held its target for the overnight rate at 2.25% on March 18, 2026 (Bank Rate 2.50%, deposit rate 2.20%), signalling no immediate policy easing from the central bank. (bankofcanada.ca) Commercial prime remains at roughly 4.45% while the lowest advertised five‑year variable mortgages sit near 3.35%, leaving fixed‑rate offers and market‑implied borrowing costs materially below the stress‑test qualifying thresholds used by lenders. (ratehub.ca) With best‑in‑market five‑year fixed offers clustered around 3.89%–4.01%, OSFI’s “contract + 2%” rule converts those contracts into qualifying rates near 5.89%–6.01%, well above the 5.25% floor for many borrower scenarios. (ratehub.ca) Industry and agency estimates show the renewal burden is large and concentrated: CMHC/industry reporting cites about 1.15 million mortgages renewing in 2026 and a further ~940,000 in 2027 (more than 2 million before 2028), and the Bank of Canada’s staff work notes roughly 60% of outstanding mortgages will renew by end‑2026. (mpamag.com) MLS activity and listings data confirm demand softness that interacts with stress‑test constraints—national MLS® sales fell 5.8% month‑over‑month in January 2026, Canadian sales slipped again in February, and the national average home price was reported at $652,941 in January while new listings rose about 7.3% month‑over‑month. (stats.crea.ca) CMHC’s mortgage industry data show the Big Six banks and credit unions increased origination share to roughly 59% and 18% in H1‑2025 while alternative lenders’ outstanding balances grew faster, and OSFI has launched a six‑month consultation to consolidate guidance — all signalling regulatory continuity and competitive repricing rather than relief for borderline borrowers. (cmhc-schl.gc.ca) OSFI still expects lenders not to apply the MQR to “straight switches” at renewal with no increase in loan amount or amortization, but applies the MQR to refinances or cash‑outs — a distinction that keeps refinancing volumes and prepayment elasticity muted while average renewal payments are forecast to rise (BoC staff estimate average payments +6% in 2026 vs. Dec‑2024 under market expectations). (osfi-bsif.gc.ca)
