Fitch: OSFI rule change will protect against tail risk of correction

The changes to OSFI’s B-20 guideline which will tighten mortgage lending criteria from January has not been widely welcomed, but Fitch says it’s a good thing.

The ratings agency says that the banking system is still vulnerable to “a growing tail risk of a sharp correction in the housing market” and that the tightened underwriting should lead to more conservative decisions and will be “constructive for the banking industry by further supporting the long-term sustainability of Canada’s residential real estate market.”

Fitch notes that some borrowers may be tempted towards riskier lenders but expects that overall the rule changes will cool the market, a “positive development” in the overvalued market, especially in Toronto and Vancouver.

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