Devon Ajram, Vice-President and National Director of TD’s Broker Services, acknowledged that the change is a “massive win” for consumers. However, he also doesn’t believe there will be significant outflows of clients from one lender to another as lenders work hard to keep those clients.
“I think the lenders who have got meaningful portfolios to potentially lose are going to be quite astute about what they need to do to try and retain that business,” he said during the lender panel at Mortgage Professionals Canada’s National Mortgage conference in Montreal.
He added that roughly three quarters of outstanding loans are comprised of conventional, or uninsured, mortgages, and that those mortgage holders are typically less prone to financial stress and therefore less likely to make the leap to another lender.
“But I certainly do think that lenders will have to think about sharpening their pencil a little bit, certainly when it comes to renewals,” he acknowledged, particularly monoline lenders who don’t have deeper relationships with clients by way of multiple products. “Because consumers will have that option to move around if they want to.”
Manulife President and CEO Katy Boshart agreed, saying lenders will also have to up their game when it comes to customer service if they hope to retain those clients who now have more freedom to shop around.
“I think it puts the onus on us as lenders to create the right experiences for our customers,” she said. “It’s not always about [the best] rate.”
Tracy Gomes, Senior VP, Real Estate Secured Lending at Scotiabank, added that the move is “great for the client to not feel like they’re being trapped at their own institution,” and are now able to more freely shop around.
She confirmed that no further details had been provided by OSFI at of late October, and that lenders would be looking to OSFI’s Nov. 21 quarterly update for further details.
First National CEO Jason Ellis suggested that media claims of borrowers being trapped at their existing lender due to the stress test were “wildly overstated.”
“Optically, it’s good that the borrowers now have that flexibility, but I don’t think it changes a lot,” he said. However, he did add that “we are going to throw ourselves on swords to keep our borrowers.“
Is OSFI likely to scrap the stress test entirely?
There has been speculation that this change is just one step towards the eventual removal of the mortgage stress test altogether, especially given its diminishing relevance in today’s falling-rate environment.
John Webster, former CEO of Scotia Mortgage Authority, predicts that the stress test will be eliminated entirely within the next 12 months.
He points out that with OSFI’s new loan-to-income (LTI) limits for highly indebted borrowers coming into effect in Q1 2025, the two measures will likely run concurrently for about a year before the stress test is phased out.
“There’s no rationale for the stress test in this interest rate environment,” he said during a recent public appearance. “Modeling that was done by the previous superintendent was based on a rising interest rate environment, not this environment. So I don’t think there’s any rationale for it.“
If this were to happen, it would mirror what occurred in the UK, where the introduction of an LTI cap was followed by the eventual removal of their mortgage stress test.
However, not everyone in the industry shares the same optimism. Mortgage expert Ron Butler of Butler Mortgage told CMT, “Maybe, but I’ll believe it when I see it.”
