In its latest survey of financial institutions, the Bank of Canada found that the stricter mortgage underwriting regime ushered by new rules has led to tighter lending conditions for households during Q1 2018.
Respondent institutions reported that the new B-20 standards have had noticeable impact since their introduction last January. The impact was particularly evident in “non-price” conditions (like credit limits and minimum payments) for low-ratio mortgages and home equity lines of credit (HELOCs).
“Price conditions for mortgages also tightened, as the spreads charged to customers increased in tandem with mortgage rates,” the Bank of Canada stated in its report of the survey results, as quoted by the Financial Post.
Read more: Originations down despite benefiting from B-20
“However, some institutions reported a decrease in demand due to regulatory changes, while others reported an increase, citing some pull-forward from applications received before the implementation of the B-20 changes, as well as expectations of higher interest rates,” BoC added.
Notably, demand for HELOCs and low-ratio mortgages increased slightly in the first quarter. BoC said that low-ratio mortgages fit the criteria for uninsured loans, and thus are likely to be affected by the B-20 requirement of a “stress test” for uninsured mortgages.
A significant number of respondent institutions are expecting this particular demand to decrease in Q2 2018, taking into account the steady trend of high-ratio mortgages falling out of favour ever since regulatory changes were introduced in fall 2016.