Canada's regulator limits leverage in banks' mortgage portfolios

Canada's banking regulator says it will limit the amount of leverage banks are allowed in their uninsured mortgage portfolios.

The Office of the Superintendent of Financial Institutions says the new uninsured mortgage loan income limit will help reduce borrowers' risk of defaulting on their loans.

As the limit is applied at the portfolio level, individual borrowers do not face any particular limit.

OSFI says that a common portfolio limit for banks is that new loans cannot exceed 4.5 times the borrower's income, but the portion of new loans that exceed the limit is tailored to each bank.

The measure, known as the minimum qualifying rate, also known as the mortgage stress test, allows for higher leverage at a time of low interest rates, the regulator said.

OSFI said the restriction is expected to take effect in each financial institution's first fiscal quarter of 2025.

This Canadian Press report was first published on April 12, 2024.