Introduction

The Bank of Montreal (BMO) has announced a significant tightening of mortgage lending rules for self-employed Canadians, particularly those in industries vulnerable to U.S. tariffs. Critics are concerned that this decision adds undue hurdles during an already uncertain economic climate, impacting many hardworking individuals in the steel and aluminum sector and other “tariff-impacted industries.”

Policy Changes and Affected Industries

Effective March 19, this policy change will affect hundreds of thousands of self-employed Canadians across several fields, including construction, transportation, leisure, retail, banking, manufacturing, and agriculture. BMO has categorized these sectors in what it defines as the "Limited Appetite treatment list," signaling that self-employed individuals in these industries will face stricter qualification requirements and reduced access to credit.

Industry Reaction

Trevor Daly, a seasoned mortgage broker with 25 years of experience, expressed his bewilderment over BMO's decision to broadly target entire industries during a time when Canadian pride and unity are being emphasized. "It's mind-boggling," he stated.

Mortgage Impact

The critical impact of BMO's announcement is likely to be a reduction in the size of mortgages available to those in affected sectors. BMO has adjusted its total debt service (TDS) ratio from 44% to 42%. This means that applicants must ensure that their total monthly obligations — including mortgage payments, taxes, utilities, and other debts — do not exceed 42% of their income.

For instance, considering the average price of a detached home in Toronto is approximately $1.45 million, a 20% down payment would lead to monthly mortgage payments of over $6,096. When added to property taxes, heating bills, credit card debt, and car payments, a household earning $200,000 annually would find itself at a TDS of 46%, significantly above BMO’s new threshold. To meet the required TDS of 42%, they would need to purchase a house priced nearly $200,000 lower.

Responses from the Industry