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One of the worst mortgage policies in Canadian history could come to an end by next year.
That is, if the Conservatives win the October 21 federal election.
Conservative Party leader Andrew Scheer summarized the problem for the Canadian Home Builders’ Association on Friday, saying: “If you want to switch lenders you have to go through the stress test. But if you stick with your original lender you don’t.”
“That has the consequence of the bank that you’re with kind of having you over the barrel,” he said. And, for people with uninsured mortgages who want to switch lenders for a better deal but can’t quite pass the stress test, he’s right.
“I don’t see the public policy goal that that achieves,” Scheer told the crowd. “That’s something we’re committed to removing.” (If you want to understand this issue in detail, my Globe story explains it.)
A Wholesale Review
“Clearly there are some major unintended consequences [of the 2018 stress test],” Scheer said.
That’s in opposition to the likes of CMHC boss Evan Siddall, who famously became known for denying “unintended consequences” after the insured mortgage stress test was announced in 2016.
Scheer says his new government will be “committed to reviewing” what stress test “changes can be made.”
The overarching goal is “ensuring that the credit markets are solid.” He says he wants to be sure “there isn’t some of the exposure that we’ve seen in other countries that have led to major problems…but at the same time not choking off access for Canadians looking to buy their first home who have the ability to pay.”
Another problem he cited on Friday was the displacement of borrowers from the prime lending market. “Some of the mid-tier lenders are being squeezed out” by government rules, he said, “making [consumers] pay higher interest….because they’ve been moved to [non-prime lenders].”
For consumers renewing or refinancing to lower their debt ratios, that’s a legitimate concern.
There’s much less rationale, however, for easing the stress test on people taking on more debt (i.e., people buying a house or doing an equity take-out). These folks are taking on more risk. Many argue that if they can’t afford a potential 200+ basis point rate hike (what the stress test measures), then paying higher rates at a non-prime lender is sound risk-based pricing.
30-year Amortizations Coming Back Too?
“The 30-year amortization is something we’re absolutely looking at,” Scheer said, suggesting it would help young people afford a home.
But Siddall has argued against re-introducing 30-year amortizations on insured mortgages. Doing so would lift home values even more, he’s said, defeating the affordability goal. And, other things equal, Siddall’s absolutely right.
That’s why, if the government reintroduced insured 30-year amortizations, it might be wise to make borrowers qualify at a more conservative 25-year amortization—at least until supply catches up with demand. That way, extended amortizations would not over-inflate people’s buying power and housing demand, while giving people more freedom to optimize their finances (e.g., deploy more income to high-interest debt reduction or investments instead of their mortgage).
Odds of Change
CBC has the Conservatives leading the Liberals in the polls by six points. So if you’re rooting for change in the stress test, you could very well get it.
But the new government needs to do this right.
They’ve got to look hard at how the stress test is costing consumers untold millions in extra interest. The people most unjustly affected are renewers, as well as families trying to lighten their debt burden—i.e., people trying to refinance to consolidate high-interest debt for the first time (as opposed to serial refinancers).
What Canada doesn’t need, however, is a significant loosening of the stress test for those taking on more debt — at least until consumer debt levels ease and there’s more housing supply to offset demand. There’s just no rationale for doing that right now.
29 Comments
Sad that it takes a new government to add common sense back to mortgage regulation.
Go andrew!
I agree with Sheer
The stress test must go
Allow free market
Stop controlling people
The stress test is common sense. Just the implementation needs fine tuning as in the refinancing scenario. House prices need to come down 30% at least so the young can get in. I’m in my 60s. I have a house. The young need to be able to get into the market.
Beware politicians like scheer making these promises. They want power and couldn’t care less about accountability. Their rich friends would love house prices to stay right up there making them wealthier at the expense of anyone else.
Liberals better end this strange control policy or even die hard liberal fans will also vote for Conservatives next elections.
I agree it is about time he has my vote.
I agree with Scheer!!!! I will vote for you!!!!! Keep working hard to get people on track for success!!!!
The reason young people cannot afford houses is corp greed wages have not kept up with the huge profits companies are making.
In addition the education costs a lot and in the end is not much more then the education of a high school graduate of 1970 without the cost. The high school graduate of 1970 at least knew math.
Government and education have become big business as well.
The system is broken because Liberal governments cannot control spending and when they spend we do not see what they bought.
Do we have state of the art subways, is drinking water safe in the north.
No we just have a big debt with nothing to show for it.
They should focus on decreasing the house price which is now 30 percent than normal. Stress test lifting would increase the house price.
That’s what happens when corporation, banks control the government through lobbying. Former politicians should be banned from lobbying. We may elect someone every four year but we have little to say in between those four years during which time lobbyists have plenty to say
Get rid of the stress test and Trudeau govt, they are useless and wasted our hard working money.
This is farce and straight politics. Stress test for better has put the prices in control. If anything he needs to promise is limiting corporate greed of builders. House prices needs to come down period. That’s what the canadians needs not a stupid promise which would put debt back on people.
House prices don’t need to come down at all. They need to keep going up.
Only 700,000 families buy each year. Yet 20 times that number already own. The people who already own depend on equity appreciation for retirement.
We owe nothing to young people who can’t afford to buy a house. They can rent like I did till I was 35.
I think the underlying problem is the billions of laundered money that has been put into the housing market no doubt contributing to the insane rise in housing values. Why has this issue not been addressed more thoroughly.
Anybody who thinks the housing prices are going to come down really has their head in the clouds. With 175,000 people coming in to Canada every year, and half of those into the GTA, you could forget about prices dropping. There is little supply. The stress test is ridiculous. Canada is The only country in the world that has such a thing. Scheer will be getting my vote for sure.
House prices must by all means stay high due to the uncalled for stress test that sink us in deeper debt and the unescessary Cmhc money grabbing tactices imposed upon working tax payer who find it difficult to make two ends meet despite working 24/7.
The stress test is abominable. First under Harper for insured mortgages and now Trudeau adding uninsured mortgages. Default rates haven’t really changed, they are still below 0.4%. Higher risk lenders have default rates in the 2%-4% range. CMHC and other default insurers can handle up to a 20% default rate. The stress test is a bunch of malarky! Doing the Conservative/Liberal flip-flop every 5 years is a joke and has been a joke for the last 50years. Time to get fresh voices that actually protect Canadian’s interests. If we can’t get proportional representation, then send a message and get more green and NDP voices heard.
I left the military in 2018 to do what i thought was a happier job. however that did not turn out the way i expected. However there was a question on the form as i filled out when leaving the forces it asked why are you leave the forces. my 2nd answer was I no longer support my current government. No one ever asked me why i put that.
So because since i left i went and bought 2 newer vehs and then soon after i had spent about 25k clearing my debt off, i went to ask to get a mortgage. At a few places i was denied they said my debt threshold was too high. I failed the test, how ever after i explained myself to many bank staff no one cares that my mortgage would be monthly around 9 to 1600$ a month. Which i can afford however its ok to say no… but i now pay rent at 1100 a month for a place ill never own. .
All i want was to own my own house something to call mine. But instead i line the pockets of the home owner as i still go broke. As per say. I have the 5% to 10% down i have savings but still according to the current liberal BS this retired soldier of 22 yrs of service cant own a home in the country i so served with honour .. feels like a big sad let down. Freedom has a price or at least the liberal government feels so. My price is wasted honour… Scheer you have my vote if i can one day soon own the keys to my own place.
There is not a single good reason to vote Liberal unless you work for the CBC. Stress test are simply a way for banks to gouge borrowers.
“Canada is the only country in the world with such a thing”.
oh, you mean the UK 300bps stress test or the 7% min rate in Australia don’t exist then…
I didn’t vote for Justin, but I am grateful that the Liberals have prevented a financial meltdown in Canada’s housing market. The stress test has been a big contributor to this soft landing, as would be tighter controls on the offshore money that’s pushing up housing prices in our largest cities.
Bottom line this government have to go.They filled their pockets and rich businesses people. Have free market
With control regulations.
Lets not mix up the general incompetence of Trudeau and the over priced housing market. Trudeau needs to go but the stress test is one of the only good things that come about during his time via CMHC and not Trudeau. First time home buyers will save FAR MORE money if prices come down 10% than if they pay more because they qualify for a fatter mortgage. How do people not understand that?
Prices won’t stay down so your point is moot.
Lesson learned here:
If you want to get the readers commenting, post something political!
No kidding. Going forward we’ll have to link all rate and policy changes to either the PCs, Liberals or NDP. :p
Great post, Siddall has argued against re-introducing 30-year amortizations on insured mortgages.
i think a loser stress test will make the house prices go up, this is not a good idea , Scheer should make the private lenders obey the stress test, if the builders can’t sell their houses at the ridiculous price that they are asking, they will have to drop the prices.
i trust the PC will do the right thing and not make the prices go up more than they already are.