Conservatives’ plan to ease mortgage stress-test rules may raise debt and prices

Andrew Scheer vows to loosen rules around stress test and remove it altogether for mortgage renewals

Federal Conservative leader Andrew Scheer makes a campaign stop in Vaughan, Ont., on Monday, September 23, 2019. THE CANADIAN PRESS/Nathan Denette

Conservative leader Andrew Scheer’s pledge to extend mortgage amortization maximums for some homebuyers and loosen a contentious stress test would likely lead to more debt and higher property prices, some experts say.

“Oh my god, here we go again,” said Tsur Somerville, a professor at the Sauder School of Business at the University of British Columbia, when he heard Scheer’s announcement Monday.

Scheer plans to loosen rules around the stress test, which was designed to ensure buyers requiring mortgages could afford payments if interest rates rose, and remove it altogether for mortgage renewals.

He also plans to allow first-time property buyers to take out 30-year mortgages — reversing moves by Stephen Harper’s previous Conservative government that reduced terms from 40 years to 25 years.

With a longer amortization, first-time homebuyers can opt for a larger mortgage than they might be able to afford payments on if it were for a shorter time frame. Meanwhile, lenders may be able to approve borrowers for larger mortgages if the stress test requirements are loosened.

The stress test — introduced in 2010 and significantly modified in 2018 — has helped to slow accelerating house prices, according to various reports.

The Canada Mortgage and Housing Corp. CEO Evan Siddall defended both measures amid industry lobbying for changes earlier this summer. In a strongly worded letter to the Standing Committee of Finance Siddall said his job is to “protect our economy from potentially tragic consequences.”

The stress test has helped reduce house prices in Canada by 3.4 per cent compared to what they otherwise would have been, he said. The CMHC declined to comment Monday, saying they were not in a position to comment on political parties’ promises or announcements during the election period.

READ MORE: CMHC sets target to make housing affordable for every Canadian by 2030

A TD report released earlier this year estimated home prices could rise six per cent by the end of next year if the stress test was removed and all else remained equal.

Canadian Realtors cheered the proposal.

“Realtors have long asked for common-sense solutions designed to help Canadians purchase a home of their own,” said Jason Stephen, the Canadian Real Estate Association’s president, adding Scheer’s campaign promises include some of their suggested policy changes.

The Scheer plan also includes launching an inquiry into money laundering in the real estate sector, as well as making surplus federal real estate available for development to increase housing supply.

The supply issue is Somerville was in favour of addressing, as increased supply tends to better affordability.

Canadians’ high level of household debt has been a concern. The CMHC previously warned that high debt levels with looming interest rate hikes could lead to lower consumption, less savings or loan defaults.

Canadians owed roughly $1.77 in credit market debt — a figure that includes consumer credit, mortgages and non-mortgage loans — for every dollar of their disposable income, according to Statistic Canada’s most recent figures.

“If we’re concerned about Canadians’ level of debt, why are we helping them take on more debt?” asked Somerville.

Aleksandra Sagan, The Canadian Press

Like us on Facebook and follow us on Twitter

Just Posted

Fire on Main Street guts an apartment

Blaze leaves five homeless but no one was seriously injured

Smithers golfer competes in university golf nationals

Mitchell Turko shot a final round 73 to finish tied for 24th

Climate, reconciliation and industry top all candidates agenda in Terrace

Debate was the candidate’s last opportunity to address voters in a public forum

Smithers fighter wins bronze at karate worlds

Lando Ball narrowly missed a chance to fight in the gold medal match in Austria

Greta Thunberg meets with First Nations chief in Fort McMurray

Thunberg has turned her protest against climate change into a global movement

Canucks hang on for 3-2 win over Rangers in New York

Vancouver scores three times in first period

More beef products recalled due to possible E. coli contamination

The food safety watchdog has been investigating possible E. coli 0157:H7

B.C. VIEWS: How to get the best deal on your ICBC car insurance

ICBC slowly being dragged into the 21st century

Pot legalization has gone ‘well’, but ‘yellow flags’ on vaping: task force chair

Canada legalized cannabis for non-medical use on Oct. 17, 2018,

ELECTION 2019: Federal leaders hit final 24 hours of campaign

Many leaders remain in B.C. for the final hours of the campaign

Most Read