The Canadian real estate industry didn’t worry when banks announced they would be stress testing mortgages. Instead, many mortgage brokers boasted that borrowers would just go to credit unions, since they weren’t subject to the same rules. Bank of Canada (BoC) numbers show that isn’t the case. The balance of mortgage debt at credit unions continued to rise in February, but at the same pace as usual. Actually, in many ways, it underperformed previous years.
Credit Unions Are Not Subject To Stress Testing
The new mortgage stress test reduces the maximum size of a mortgage. OSFI B-20 Guidelines require Federally Regulated Financial Institutions (FRFI) to test a borrower’s ability to make payments at a higher rate. This can reduce the maximum size of a mortgage by up to 20%. Great plan to prevent people from borrowing too much credit, while keeping rates low for business growth.
Except… credit unions aren’t FRFI, they’re provincially regulated. Industry experts, including mortgage brokers, thought credit unions would see an explosion of new borrowers, looking to skip the stress test. We won’t get into the regulatory reasons why credit unions can’t do that (yes, there are regulatory reasons), but we’ll go through the data instead.
Credit Unions Now Hold $197.6 Billion In Mortgage Debt
The outstanding balance of mortgages increased at credit unions. BoC numbers show the balance of outstanding mortgage debt rose to $197.6 billion, a 0.07% increase from the month before. This is an increase of 6.29% compared to the same month last year. That’s huge growth, just not as big as the industry was expecting.