Credit risk

‘More power for them’: OSFI attacks investors as house prices soar


The head of Canada’s financial system watchdog is sounding the alarm on the use of home equity lines of credit (HELOCs), which he says could “simultaneously fuel and help Canadians afford real estate valuations on the rise ”.

“The use of HELOC loans and non-traditional home-backed products can result in larger and more persistent outstanding principal balances, increasing the risk of loss for lenders,” said Peter Routledge, who heads the Office. from the Superintendent of Financial Institutions (OSFI), in a speech in Vancouver on Tuesday.

“Plus, it can be easier for borrowers to manage their financial difficulties by tapping into their lines of credit to make mortgage payments. “

Routledge said these products can be useful for consolidating debt at low interest rates, but warns that their widespread use can make it difficult for regulators to assess credit risk.

His comments come amid what many describe as a housing affordability crisis, with nationwide home prices rising 24% since the pandemic began in March 2020, according to the latest Teranet house price index. National Bank. In addition, in a speech on Tuesday, Bank of Canada Deputy Governor Paul Beaudry warned debt owners of a possible correction triggered by an “influx” of investors.

As a result, Routledge said OSFI must “remain vigilant” as household credit risk becomes “slightly more fragile” and calls for a more aggressive response to the imbalance in housing supply and demand in Canada.

However, he doesn’t blame investors for seeing an opportunity.

“Secondary buyers – investors – make investments to generate a return. It’s a market economy, more power for them, ”he said in an interview on Wednesday.

“They recognize that there is pressure on futures prices, so they jump right in to take advantage of the upside. This is how markets work.

Routledge added that he believes these investors could potentially be deterred any time the market is balanced.

“If we correct the supply-demand imbalance, you will start to see, in my opinion, this zeal (and) this foam start to dissipate. I think residential mortgage credit will become less of a threat to our system. “