Greg Bonnell

Reporter

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The Bank of Canada appears cautiously optimistic that new mortgage rules can successfully take risks out of the housing market and financial system, but it won’t happen overnight.

Here are five things you should know about the bank’s semi-annual Financial System Review.

1. The bank sees Canada’s record household debt as the “most important vulnerability” to the financial system. And the large share of that debt held buy highly indebted households (those that owe more than $4.50 for every $1 of disposable income) is particularly concerning.

2. Extending mortgage stress tests to all borrowers is expected to decrease the percentage of new mortgages taken on by highly indebted borrowers.

3. Those new stress tests under OSFI’s B-20 regulation are expected to lessen the risks to the financial system, but a “significant decline in the overall vulnerability may take several years.” Why? Simply put, there’s a large pile of existing debt for Canadians to work through.

4. It’s not entirely clear how homebuyers will react to the new stress tests. While some may buy less expensive homes or wait to save more for a down payment, others may take their business elsewhere. Lenders that aren’t subject to the new rules include credit unions and the shadow banking sector (private lenders and mortgage investment corporations).

5. While foreign buying has cooled in Vancouver and Toronto in the wake of new taxes, the bank says there’s a chance it will “rebound or migrate to other Canadian cities.”