The Markets

Mortgage rule changes may help first-time home buyers, but they could hurt alternative lenders
The Canadian mortgage market may face a meaningful slowdown in 2018 - potentially leading to some price relief for buyers in hot housing markets like Vancouver and Toronto, but also possibly causing some pain for alternative lenders – and rising interest rates aren't the only culprit.New proposals for tighter mortgage underwriting standards (B-20 guidelines) from the Office of the Superintendent of Financial Institutions (OSFI) could lead to a five to 10 per cent decline in uninsured mortgage origination volumes, and even sharper pullbacks for the alternative lenders.The proposed changes unveiled by the Office of the Superintendent of Financial Institutions (OSFI) on July 6, would require stress tests to qualify for all uninsured mortgages (roughly 80 per cent of the market), and would make the qualifying rate for these mortgages the contract rate plus two percentage points.

''This could reduce purchasing power materially for some borrowers,'' said Graham Ryding, a financial services analyst at TD Securities.While his industry feedback suggests an overall volume decline in the five to 10 per cent range, Ryding noted that alternative lenders are the most sensitive to such changes and could therefore see volumes fall approximately 15 to 20 per cent.The analyst highlighted Equitable Group Inc. and Home Capital Group Inc. as the most sensitive to potentially lower volumes stemming from stricter underwriting standards.