If you’re in the market for a home—and a mortgage—you’ll have to continue to prove you can afford monthly payments based on a rate of at least 5.25%.

That’s what’s known as the “minimum qualifying rate,” or MQR, and it was left unchanged today for both insured and uninsured mortgages as part of the government’s annual review of the rate.

This means all mortgage borrowers—including those making a down payment of less than 20% as well as those putting down more than 20% and getting their mortgage from a federally regulated financial institution—need to prove they can afford payments based on the greater of a) their contract rate plus 2% or b) 5.25%.

The Office of the Superintendent of Financial Institutions (OSFI) confirmed today it would leave the MQR unchanged for uninsured mortgages, while the Department of Finance followed suit shortly afterwards, confirming no change to its stress test for insured mortgages.  

“The current economic environment supports today’s decision to maintain the current MQR,” said Ben Gully, Assistant Superintendent of OSFI.

He noted that the stress test is “especially important in the current economic environment, given growing household indebtedness and the uncertainty of the scope and pace of economic recovery from the pandemic.”

Gully added that the current stress test qualifying rate serves as a “margin of safety that demonstrates borrowers can be resilient to a variety of changes to their financial circumstances,” such as rising interest rates or changes to income.

With interest rates still at historically low levels, about 90% of uninsured mortgage borrowers are being qualified at 5.25%, as opposed to their contract rate plus 2%.

OSFI keeping an eye on demand and supply imbalances

Housing-related vulnerabilities “remain elevated,” according to OSFI, but the greatest long-term “prudential risk” remains the ongoing supply and demand imbalance. 

As of November, there were just 1.9 months of housing inventory available to buyers, meaning this is how long it would take to liquidate all housing inventory at the current sales pace. The long-term average is five months.

“A sustained, multi-year imbalance between housing demand and supply intensifies risk to Canada’s housing market and to Canada’s system of housing finance,” Gully said. “The imbalance tends to drive price increases to ever-higher levels relative to income. This, in turn, induces more Canadians to resort to more leverage when buying a home.”

OSFI promised to “remain vigilant” by monitoring housing markets across Canada, and said it could revisit the MQR anytime during the year ahead of its next scheduled review in December “should conditions warrant.”

But despite current vulnerabilities, OSFI maintains that residential mortgage credit risk has risen “only modestly.” Case in point, mortgage arrears remain at record lows. “Our view is other measures taken by OSFI and other federal financial sector agencies have contributed to a margin of safety in the market,” Gully said.