A major mortgage lender and Canada’s largest private mortgage insurer say that homebuyers are set for increased costs if proposals by the Office of the Superintendent of Financial Institutions to strengthen capital requirements are introduced.

Mortgage insurer Genworth says that “overall, the company supports OSFI’s efforts to develop a more risk sensitive capital model to ensure safety and soundness in the Canadian mortgage and housing system.”

But in a report, the insurer estimates that changes to the way capital requirements are calculated could mean a rise in premium rates especially in Calgary, Edmonton, Toronto, Vancouver and Victoria, which would be affected by new supplementary requirements.

National bank Financial has also warned that premiums are set to rise if the rule changes are adopted.

In a client note Monday, the lender’s chief economist Peter Routledge wrote: “We believe Canadian homebuyers will absorb the bulk of these higher costs directly or indirectly via higher mortgage interest rates.”

He further notes that first-time buyers and mortgage broker channels that rely on this market are most likely to be impacted by the new rules.

“Mortgage insurance premium increases passed on to the homebuyer through higher mortgage interest rates will reduce affordability, potentially stunting sales activity and slowing house price appreciation,” Routledge warned.

Canada’s financial services regulator released new draft capital requirements for federally regulated mortgage insurers to better reflect growing risks in the country’s housing markets.

The Office of the Superintendent of Financial Institutions said Friday the new requirements, which will come into force Jan. 1, are aimed at allowing insurers to better withstand “severe but plausible losses.” The new measures include provisions that trigger supplementary capital requirements for regions with high home prices relative to incomes, it said.

“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” Jeremy Rudin, head of the agency, said in a statement. “Ultimately this will continue to provide a level of protection to both policyholders and unsecured creditors.”

OSFI is strengthening its oversight as Canadians continue to tap banks for mortgage loans amid low interest rates and escalating property prices, including efforts to ensure lenders and insurers have proper controls in place. The regulator is inviting comments on the draft requirements until Oct. 21.

According to the draft rules, a scaling factor would be used to determine when supplementary capital requirements should be imposed. Based of OSFI’s methodology, had the the draft rules been in place for the second quarter, Vancouver, Toronto, Calgary and Edmonton would have faced supplemental capital requirements.

Drivers of Risk

The new approach will incorporate new drivers of risk “such as borrower creditworthiness, remaining amortization, and outstanding loan balance,”

OSFI said in a letter distributed to mortgage insurers.

Capital requirements for insurers were last updated almost 15 years ago, the regulator said. State-owned Canada Mortgage and Housing Corp. is the country’s biggest mortgage insurer. It competes with private-sector companies Genworth MI Canada Inc. and Canada Guaranty Mortgage Insurance Co.

As expected, the Federal Reserve held interest rates steady this month – but experts say there could still be a rate hike in December.

The Federal Open Market Committee decided at its meeting to hold rates steady yet again, its hand stayed by lukewarm inflation and recent weak economic data. The decision to hold off on a rate increase came as no surprise to most observers; economists polled by Reuters ahead of the meeting thought a hike unlikely. However, most of those polled expected a rate increase at the Fed’s December meeting.

“The last thing the Fed wants is to disrupt financial markets with a big surprise,” Torsten Slok, chief international economist at Deutsche Bank, told Fortune.

The FMOC apparently agreed. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” it said in a news release. “The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”

The Fed raised its benchmark interest rate to a range of 0.25% to 0.50% in December, after nearly a decade of holding rates near zero. That hike had been intended as the first of several small increases over the course of the next year. But weak inflation and other economic indicators have kept the Fed from following its plan, and rates haven’t been raised since.

While unemployment is low and job gains are outpacing population growth, inflation is still well under the Fed’s target rate of 2%, according to Fortune. Coupled with weak August numbers for manufacturing and the service industry, that led most economists to foresee today’s decision to hold rates steady.

Good news and bad news for homeowners; low interest rates are set to be around for a while but the Canadian economy is likely to remain sluggish.

Speaking at a conference in the UK, the Bank of Canada’s senior deputy governor Carolyn Wilkins said that weakness in the global economy poses a risk to Canadian growth with low interest rates and slow growth damaging corporate investments and impacting the labour market.

Additionally, she said that “households could experience longer and more frequent periods of shrinking incomes, making their debts more burdensome.”

The low cost of borrowing may also encourage greater credit risks with potential damage to the financial system.

Ms. Wilkins urged lenders and the wider population to “adapt to the new reality of lower potential growth.”

LONDON _ The senior deputy governor of the Bank of Canada says investors and those in the financial system need to adapt to the reality of slower growth and associated low interest rates.

In a speech to the Official Monetary and Financial Institutions Forum in London, England, Carolyn Wilkins said Wednesday that means changing investment strategies and risk-management practices to reflect lower rates of return.

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“For households, this may mean saving more before retirement or planning for a lower post-retirement income,” Wilkins said in a prepared text of her speech.

“It also means acknowledging a reduced capacity to grow out of existing debts. The faster we do this, the safer the financial system will be.”

Wilkins said countries must also continue to work to take steps that will improve long-term growth.

“Authorities have to continue to solidify the global financial system and guard against emerging problems,” she added.

Wilkins said economists estimate the interest rate needed to balance savings and investment when the economy is operating at potential has fallen in Canada to 1.25 per cent, from three per cent in the early 2000s.

She noted that while the Bank of Canada’s key interest rate target is set at 0.5 per cent, it is less stimulative that it would have been a decade ago at that level when the so-called neutral rate was higher.

“At the same time, as population aging continues, the neutral rate could fall further, unless productivity growth picks up or global savings fall,” Wilkins said.

“And the longer weak investment persists, the more important this risk becomes.”

The Bank of Canada kept its key interest rate target on hold last week after exports disappointed earlier this year. The central bank also said the risks for inflation have “tilted somewhat to the downside,” though it remained roughly in line with its expectations.

The decision followed a report late last month that the economy contracted at an annual pace of 1.6 per cent in the second quarter, worse than the one per cent that had been forecast by the Bank of Canada in its July monetary policy report.

The third quarter is expected to show growth as production from the oilsands resumes after they were temporarily shut down due to the wildfires and as work begins on rebuilding damaged portions of Fort McMurray, Alta., and surrounding areas.

The Bank of Canada held the target for the overnight rate at ½% Wednesday.

Canada’s economy shrank in Q2, according to the BoC; however it’s still predicting a bounce back by the end of the year.

“Second-quarter GDP was pulled down by the Alberta wildfires in May and by a drop in exports that was larger and more broad-based than expected,” the Bank of Canada said in its announcement. “Exports disappointed even after accounting for weaker business and residential investment in the United States, adjustments in the resource sector, and cutbacks in auto production.”

Oil production is expected to rebound and rebuilding within Alberta is predicted to start in Q3

“As federal infrastructure spending starts to have more impact, growth in the fourth quarter is projected to remain above potential,” the Bank said. “While the strength in exports during July was encouraging, the ground lost over previous months raises the possibility that the profile for economic activity will be somewhat lower than anticipated in July.”

Financial vulnerabilities still exist, however, with household imbalances continuing to worry the Central Bank.

“On balance, risks to the profile for inflation have tilted somewhat to the downside since July. At the same time, while there are preliminary signs of a possible moderation in the Vancouver housing market, financial vulnerabilities associated with household imbalances remain elevated and continue to rise,” the Bank said. “The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate.”

The global economy, meanwhile, grew at a slower clip than the Bank had predicted in July.

However, it is expected to show signs of strength in Q3 and beyond.

“The US economy was weaker than expected in the second quarter, notably reflecting a contraction in business and residential investment,” it said. “While a healthy labour market and solid consumption should remain supportive of growth in the rest of the year, the outlook for business investment has become less certain. Meanwhile, global financial conditions have become even more accommodative since July.”

As analysts and investors worldwide focus on the likelihood of a US interest rate rise, a poll of economists has found little expectation of anything similar from the Bank of Canada until 2018.

The Reuters survey of 35 experts was certain that there would be no change from the 0.5 per cent rate this month and their longer-term outlook suggests that the bank will wait until the first quarter of 2018 before a hike.

Previous polls had suggested there would be a rise in the last quarter of 2017.