Mortgage brokers, home builders advocate for reduced stress test requirements for home financing

Builder constructing a home

Associations representing Canadian mortgage professionals and home builders have issued statements indicating that the federal government’s “stress tests” to cool the housing market have gone too far, and are cutting people out of the market who could otherwise legitimately afford mortgages and homes.

Federal policy changes designed to cool housing prices and demand continue to impact housing markets across Canada with cascading consequences and pressures, according to the newly-released Annual State of the Mortgage Market in Canada report by Mortgage Professionals Canada (MPC).

The slowdown in the various housing markets across the country are more pronounced than anticipated, MPC says.

“We are seeing downward trends and/or depressions in areas like the resale market, the outlook on employment in the housing construction sector, and a continued decline in rental vacancy rates,” said MPC president Paul Taylor. “Federal policy changes are disqualifying potential first-time homebuyers and creating immense pressures on the rental market which is in turn driving rental prices higher. It is a spiralling problem.”

The report outlines that improper policy levers can continue to depress the market.

“While the government has been focused on borrowers and interest rates, the reduction of activity in the housing market and extremely low rental vacancy rates will impact not only costs to first-time homebuyers and all renters, but also impact employment and the overall economy,” said Will Dunning, MPC’s chief economist and author of the report. “As a result of these policies, the economy will be weaker than it needs to be.”

“We support prudent and evidence-driven actions to test a borrower’s abilities to make future payments,” saud Taylor. “Our report illustrates that a more reasonable stress test level and lending restriction reforms are now needed to strike a better balance for borrowers and policymakers, improving housing affordability and Canada’s economy.”

These views are echoed by the Canadian Home Builders’ Association (CHBA).

“Current federal government restrictions on mortgage lending are having very negative impacts on our industry, and on prospective home buyers,” a CHBA statement says. “Younger, first-time home buyers, who play a critical role in housing markets, are the hardest hit. Far too many have simply been locked-out of home ownership.”

CHBA says is pressing the government to reintroduce 30-year mortgages for first-time buyers. “The market share for insured mortgages (used most by first-time buyers) has been cut in half in recent years. Re-qualifying 30-year mortgages for insurance would increase first-time buyers purchasing power by about 20 percent.”

As well, CHBA is pressing the government to overhaul the current stress test for mortgages, reducing the added stress test interest rate factor from the current 2 percent above the contract rate, to as low as .75 percent for five-year locked-in mortgages, and to eliminate it for 7 and 10-year mortgage terms.

“At current rates, this would reduce the stress test on five-year mortgages from 5.7 percent to 4.45 percent, allowing many more well-qualified to secure a mortgage. Locking in for longer terms would provide still more security.”

“These two changes are balanced, responsible and prudent, and they directly address the unfairness of current federal mortgage restrictions,” the CHBA statement says. “Neither measure will cost the federal government money, or materially increase the risk to either lenders or borrowers. And both will remove significant barriers to home ownership for tens of thousands of hard-working Canadians, particularly first-time buyers, wanting to achieve their home ownership dreams.

“Financial and market conditions have changed. Mortgage restrictions need to change to. CHBA’s common sense recommendations will ‘unlock the door’ for many Canadians who have earned a fair shot at home ownership.”


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