(Ottawa) Canada’s banking regulator says it will impose limits on the amount of debt banks allow in their uninsured mortgage portfolios.
The Office of the Superintendent of Financial Institutions says the loan-to-income ratio (LTI) cap on new uninsured mortgages will help reduce the risk that borrowers will not be able to repay their loans.
Since the cap will apply at the portfolio level, individual borrowers will not face a specific limit.
OSFI says that for banks, the common limit on portfolios will be that new loans cannot exceed 4.5 times the borrower’s income, but the share of new loans that can exceed the limit will be adapted to each bank.
The regulator says the measure will act as a safety net to the minimum allowable rate, also known as the mortgage stress test, which can still allow higher leverage in times of low interest rates.
OSFI says the cap is expected to come into effect in the first quarter of 2025 for each financial institution.