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C$89.46 2.1  2.4%

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Sector
Financials
Size
Large Cap
Market Cap £71.86bn
Enterprise Value £228.00bn
Revenue £27.23bn
Position in Universe 1st / 2630

UPDATE 1-Canada tweaks mortgage stress test in move that could boost housing market

Tue 18th February, 2020 8:34pm
(Recasts, adds economist comment, details of change)
    By Nichola Saminather and Fergal Smith
    TORONTO, Feb 18 (Reuters) - Canada on Tuesday announced a
change to a three-year-old financial stress test designed to
reduce risky mortgage lending,  potentially reigniting housing
markets the measure was meant to cool.
    The change, shifting away from banks' public rates that tend
to be higher than market rates, could allow consumers to borrow
more at a time when Toronto and Vancouver, Canada's two biggest
housing markets, are rebounding.
    The new benchmark for home loans with downpayments of less
than 20% will be the weekly median five-year fixed insured rate
calculated from mortgage insurance applications, the finance
department said in a statement. Taking effect on April 6, it
replaces the Bank of Canada's five-year posted benchmark rate.
 urn:newsml:reuters.com:*:nL1N2001AJ    
    "This is a move in the right direction; it makes the rate
more reflective of the changes in the market," said Benjamin
Tal, deputy chief economist at CIBC Capital Markets. "It will
not address all the issues... because when interest rates go up,
the stress test can be... too restrictive."
    Borrowers will still need to show they can afford a rate two
percentage points higher than the benchmark.    
    Five-year market fixed rates are a little less than 3%,
making the qualifying rate below 5%, said James Laird,
co-founder at Ratehub.ca, which compares rates on mortgages,
insurance and credit cards. The Bank of Canada's posted
five-year mortgage rate is 5.19%. 
    "Once this change comes into effect on April 6, (Canadians)
can expect to qualify for a little bit more than they could
before if they are an insured or insurable buyer," Laird said. 
    The Office of the Superintendent of Financial Institutions
(OSFI) is also seeking input on a proposal to make the same
change for mortgages with downpayments of more than 20%,
Canada's main financial regulator said in a separate statement. 
    OSFI introduced a stress test for such mortgages, known as
B-20, in January 2018 to ensure banks maintained vigilant
mortgage underwriting standards when home prices were climbing
at a breakneck pace in Toronto and Vancouver.
    While the rules did help cool housing markets, a supply
shortage is again lifting prices.  urn:newsml:reuters.com:*:nL4N2A63TK
    Canada's biggest banks did not immediately respond to
requests for comment. 
    The rate will be calculated by the Bank of Canada, published
on a Wednesday to come into effect the following Monday, the
statement said.
    The National Housing Agency insures mortgages with
downpayments of less than 20% of a home's sale price.

 (Reporting by Nichola Saminather and Fergal Smith; Editing by
Tom Brown and David Gregorio)
 ((Nichola.Saminather@thomsonreuters.com; +1-416-687-7604;))
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