Another organisation has added its voice to those opposing OSFI proposals to introduce tougher lending restrictions for uninsured mortgages and warns it could harm competition in the mortgage industry.

The Fraser Institute says that requiring a stress test with a margin of 2 percentage points above the agreed rate for those homebuyers with at least a 20% downpayment, is unnecessary and could negatively affect buyers across Canada.

In a study called Uninsured Mortgage Regulation: From Corporate Governance to Prescription, author Neil Mohindra says there are several potentially negative effects from the proposed rule-tightening:
  • Access to mortgages may become more limited, especially for buyers in high-price markets;
  • Buyers may be forced to abandon preferred homes for less-desirable options;
  • Increased use of unregulated lenders with higher interest rates;
  • Buyers may opt for shorter term variable rate loans.
The report also suggests that the mortgage industry could become less competitive from the OSFI rule as those lenders that are niche players in the residential market may find their business is impaired.

This, the report concludes, runs counter to the federal government’s objective of promoting more competition from smaller lenders.

“OSFI’s emphasis on corporate governance worked well during the financial crisis. Shifting towards more prescriptive rules is an ominous sign,” Mohindra said.

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