Canadian workers in industries threatened by U.S. tariffs could soon have a harder time qualifying for a mortgage, warn mortgage brokers, as one major bank has already restricted lending and others are expected to make similar moves.
In an internal memo shared with brokers, BMO recently announced it would tighten lending criteria for self-employed borrowers working in aluminum and steel as well as other “high-risk” industries, including manufacturing, farming and natural resources.
BMO says it is common practice for financial institutions to consider economic factors — including industry types — when evaluating loan applications and that it aims to “protect customers’ long-term financial health,” BMO spokesperson Anke Suwanda wrote in an email to the Star.
Critics, however, say the bank’s new policy adds to the financial hurdles facing workers who are already distressed and vulnerable to mass layoffs.
“It is frustrating now to see a chartered bank begin to tighten the screws on people who are least able to ride this (trade war) out and are certainly not at fault,” said Chris Roberts, director of social, economic, policy department at the Canadian Labour Congress.
The move comes as U.S. President Donald Trump is set to announce reciprocal tariffs on its trading partners, including Canada, on Wednesday while a 25 per cent tariff on Canadian steel and aluminum is already in effect. Economists have warned that across-the-board tariffs threaten to plunge the Canadian economy into a recession.
BMO said in the memo that, for applications made as of March 19, it will temporarily lower the total debt service (TDS) rate — the percentage of monthly household income that covers mortgage payments, property taxes and additional debt — to 42 per cent from 44 per cent.
In other words, BMO is asking self-employed borrowers in high-risk industries, which can include farmers, truck drivers and other sole-proprietors, to prove they can cover all housing costs with less of their income.
BMO’s Suwanda said that over 99 per cent of mortgage applicants will not be impacted by the policy change.
“The technical policy adjustment you referenced is only one of many factors when considering the applications of self-employed applicants. Each customer’s situation is unique and personal, so loan applications are always considered individually,” Suwanda told the Star.
BMO is also requiring at least one borrower have a minimum credit score of 750 and a gross debt service (GDS) rate, which reflects debt servicing just for housing costs, of maximum 39 per cent.
The Canada Mortgage and Housing Corp. restricts debt service ratios to 44 per cent (TDS) and 39 per cent (GDS).
Mortgage brokers interviewed by the Star said BMO was the only bank to formally announce tariff-related policy changes so far. And while the bank’s changes aren’t drastic, brokers believe most lenders will generally get tougher behind the scenes as the trade war continues.
If across-the-board tariffs eventually stick for multiple quarters and there is a recession, fewer people will get approved for mortgages, the loan amounts will be smaller, and lenders will ask for higher credit scores or require co-signers or guarantors on the mortgages, brokers say.
“You can be sure that underwriting will incrementally tighten all over the industry for borrowers who work in at-risk industries,” said mortgage strategist Rob McLister.
“It will come to a head as more severe tariffs and resulting layoffs are announced. If I were such a borrower and needed financing, I’d lock it down as soon as possible.”
McLister added that workers who get approved for a mortgage but end up losing their jobs, even if temporarily, could be at risk of seeing their lender become unwilling to close the deal.
Brokers also said the banks are actively seeking to reduce their risk and will likely increase underwriting due diligence going forward.
Rakhee Dhingra, CEO of brokerage Mortgage Savvy, says the banks have been asking more questions that reflect a lower risk tolerance.
For example, “how many properties (does) this client own? How many are rentals? What is the overall exposure? How many mortgages do they have with a specific institution?” said Dhingra.
For self-employed workers, banks might want to get the full story by asking for financial statements of their companies — even if the workers’ personal financial documents are satisfactory, said Jason Friesen, managing partner at Outline Financial. If these workers already have a mortgage and are facing renewal, they won’t have any problems renewing with their existing lender, he said.
But they could find it harder to refinance their mortgage. Lenders might not approve refinancing, or could ask for a risk mitigator, such as a guarantor, if they perceive a significant risk to the workers’ income, McLister said.
The Star reached out to the other Big Six banks — Scotiabank, CIBC, TD, RBC and National Bank — but they did not provide comment.
The industry trade group contends that banks are “standing by Canadians to manage challenging times,” said Nathalie Bergeron, spokesperson for the Canadian Bankers Association.
“Banks adhere to responsible lending practices and maintain high standards for risk management,” Bergeron continued.
“Each bank carefully assesses the appropriateness of mortgage products for their customers and comply with requirements established under the Bank Act, FCAC guidance and those set by the Office of the Superintendent of Financial Institutions (OSFI).”
