Have you heard? The OFSI, Canada’s financial regulator, has announced that they intend to tighten the borrowing rules for HELOC loans. More specifically, they plan to make changes to how these loans are classified and underwritten. Ultimately, these changes will increase borrowing costs for consumers and make it more difficult to qualify in the first place.
What do we think? The whole thing is a bit problematic.
Over the course of the pandemic, there was a sharp increase in the number of Canadians taking out this type of loan. Now that interest rates are going up, the OFSI is getting antsy. They’re concerned that we’ll see an increase in defaults as rates continue to rise and they’re overreacting out of an abundance of caution.
But the thing is, that Canadians are notoriously conservative in their borrowing. In fact, our debt to service ratios are actually quite healthy. And this won’t prevent borrowing. It’ll just push consumers toward riskier lenders and higher interest debts. We would guess that HELOCs prevent a lot more defaults than they cause.
It seems like one more short-sighted act of lip service from the powers that be. More often than not, government intervention leads to unintended consequences. We’ll keep you in the loop as the whole thing unfolds.
