Breaking: 1 Banque Nationale Rule Change for 2025

Introduction: A Shift in Canadian Mortgages

In a surprising move set to reshape a corner of the Canadian mortgage landscape, National Bank of Canada (Banque Nationale) has announced a significant internal policy change effective January 1, 2025. While Canada's other major banks continue to adhere strictly to the federally mandated mortgage stress test guidelines, National Bank is introducing a more nuanced approach for a specific segment of its clientele. This breaking development, dubbed the “Relationship-Based Qualifying Rate,” marks the first major deviation from the standard stress test by a Big Six bank, potentially giving certain homebuyers a crucial edge in an increasingly competitive market. This post will break down exactly what this rule change is, who it affects, and what it could mean for your home-buying journey in 2025 and beyond.

Understanding the Status Quo: The OSFI Mortgage Stress Test

Before diving into the change, it’s essential to understand the current system. For years, all federally regulated financial institutions in Canada have been bound by the Office of the Superintendent of Financial Institutions (OSFI) B-20 Guideline. A key component of this is the mortgage stress test.

In simple terms, the stress test requires lenders to qualify you for a mortgage at a rate higher than your actual contract rate. The goal is to ensure you can still afford your payments if interest rates rise. Currently, the minimum qualifying rate is the greater of:

• Your negotiated mortgage rate plus 2%
• The OSFI benchmark rate (currently 5.25%)

This has been a significant barrier for many potential homebuyers, as it effectively reduces their maximum borrowing capacity. It’s a one-size-fits-all rule designed to protect the stability of the financial system, but it has often been criticized for penalizing fiscally responsible borrowers in high-cost-of-living areas.

The Big Reveal: National Bank's 2025 Rule Change

Effective in 2025, National Bank will implement a proprietary adjustment to its stress test calculations for certain qualifying clients. It’s crucial to note that they are not abandoning the stress test altogether. Instead, they are leveraging their own risk assessment models to offer a slightly more lenient qualifying rate for clients they deem to be lower risk.

Introducing the “Relationship-Based Qualifying Rate”

The new rule introduces what National Bank is calling the “Relationship-Based Qualifying Rate.” For eligible applicants, the qualifying rate will be the greater of:

• Your negotiated mortgage rate plus 1.5% (instead of the standard 2%)
• The 5.25% benchmark rate

While a 0.5% reduction in the qualifying “add-on” rate may seem small, it can have a substantial impact on the total mortgage amount a borrower can secure. The bank’s rationale is that clients with a proven financial history and a deeper relationship with the institution represent a lower credit risk, warranting a more tailored risk assessment than the broad OSFI standard allows.

Who is Eligible for This New Flexibility?

This preferential rate won't be available to everyone. National Bank has outlined specific criteria to identify clients who pose a lower risk. Eligibility generally requires meeting at least two of the following conditions:

• Lengthy Tenure: A consistent banking relationship with National Bank for 5 or more years.
• Substantial Assets: Holding a minimum of $100,000 in investments or savings with National Bank or its wealth management division.
• Excellent Credit History: A credit score consistently above 800, with a proven track record of managing debt responsibly.
• Professional Designation: Certain accredited professionals (e.g., doctors, lawyers, engineers) with stable, high-income potential may also qualify.

Old vs. New: National Bank's Stress Test Compared

How This Change Impacts Canadian Homebuyers

This rule change is more than just a new policy; it's a strategic move that could alter borrowing dynamics and create new opportunities for a select group of buyers.

A Tangible Boost in Borrowing Power

Let's look at a practical example. Consider a family with an annual household income of $150,000 and a 20% down payment. They are seeking a 5-year fixed mortgage at a contract rate of 4.5%.

• Under the standard rule: They must qualify at 4.5% + 2% = 6.5%. Based on standard GDS/TDS ratios, they might qualify for a mortgage of approximately $580,000.
• Under National Bank's new rule: If eligible, they would qualify at 4.5% + 1.5% = 6.0%. This lower qualifying rate could increase their maximum mortgage amount to approximately $615,000.

That extra $35,000 in borrowing power can be the difference between buying a detached home versus a semi-detached, or securing a property in a more desirable neighborhood.

Potential Ripple Effects on the Housing Market

While this change only applies to one bank and a subset of its clients, it could have broader implications. It may pressure other banks to re-evaluate their own internal risk models and consider similar loyalty-based programs to remain competitive, especially for attracting high-value clients. This could signal a slow-moving trend away from rigid, uniform regulations towards more data-driven, institution-specific risk management in the Canadian banking sector.

What This Means for All Buyers

If you are a National Bank client or believe you could meet the eligibility criteria, this is a significant development. It's a compelling reason to consolidate your banking and investments to potentially unlock greater borrowing power. If you are not a client, this rule change makes it worthwhile to include National Bank in your mortgage shopping. A mortgage broker can be an invaluable asset here, helping you compare offers and determine if switching banks could be a strategic move for your home purchase.

Expert Analysis: A Prudent Innovation or a Risky Gamble?

From a financial industry perspective, National Bank's move is a calculated one. On one hand, it can be seen as a prudent innovation. The bank is using its own extensive data to make more informed lending decisions, rewarding fiscal responsibility and customer loyalty—something many feel has been missing from the market. By cherry-picking the lowest-risk borrowers for this benefit, they can increase their mortgage portfolio while maintaining a strong risk profile.

On the other hand, any move that loosens lending standards, even slightly, will draw scrutiny. Critics may argue that it creates a two-tiered system and could introduce micro-pockets of risk if not managed with extreme diligence. Regulators at OSFI will undoubtedly be watching closely to see how this policy plays out and whether it impacts the bank's overall financial stability.

Preparing for 2025: Your Action Plan

With this change on the horizon, proactive homebuyers can take steps now to position themselves for success.

1. Review Your Banking Relationships: Assess where your accounts and investments are held. Consolidating with one institution could offer future benefits beyond just convenience.
2. Consult a Professional: Speak with a mortgage advisor at National Bank to see if you might qualify under the new 2025 guidelines. An independent mortgage broker can also provide a holistic view of the entire market.
3. Focus on Financial Health: Regardless of this rule change, the fundamentals remain the same. Continue to build a strong credit score, save for a larger down payment, and keep your debt-to-income ratios low. These actions will make you an attractive borrower to any lender.

National Bank's 2025 rule change is a clear signal that the Canadian banking landscape is capable of evolution. For savvy and well-prepared homebuyers, this change could be the key that unlocks their next front door.