(Bloomberg) -- Canada's banking regulator said the country's mortgage stress test has helped prevent widespread defaults as interest rates rose this year, rebuffing calls to weaken or eliminate the measure amid a surge in homebuying costs.
Most Read from Bloomberg
Putin Says Russia May Add Nuclear First Strike to Strategy
Celine Dion Brings Attention to Stiff Person Syndrome: Here's What It Is
Harry and Meghan Throw the Gauntlet to William and Kate
Stocks Suffer Late-Day Swoon as Traders Shun Risk: Markets Wrap
Musk Twitter Leak Raises Concern About Outside Data Access
The Office of the Superintendent of Financial Institutions requires banks to ensure that borrowers can still qualify for their mortgages at a rate two percentage points higher than what the lender is offering, or 5.25% - whichever rate is higher at the time. After the Bank of Canada's latest hike earlier this week, that minimum qualifying rate may soon top 8%.
The bank watchdog on Friday pushed back on growing calls to lower or kill the stress test, rebutting the argument that mortgage rates may be peaking and that the test is putting "an undue burden on homebuyers."
"We see great risk in speculating on the mortgage rate cycle, and we do not consider the minimum qualifying rate to be a tool to manage the demand for housing," OSFI Superintendent Peter Routledge said in a statement. "We see the minimum qualifying rate as an underwriting practice that adds an important safety buffer to residential mortgage portfolios, the largest exposure Canadian lenders have on their books."
OSFI will announce the outcome of its annual review of the buffer in mid-December and start a broader review of residential mortgage and underwriting practices in January, Routledge said.
Most Read from Bloomberg Businessweek
Airbus Is Coming for Boeing's 737
China Is the Wild Card for Global Inflation in 2023
The US's New Approach to Venezuela Is Starting to Bear Fruit
The Cult of the Retail Trader Has Fizzled
The Viral List That Turned a Yale Professor Into an Enemy of the Russian State
©2022 Bloomberg L.P.