Housing stress test disproportionately harms young homebuyers: mortgage industry
A recently toughened stress test is making it more difficult for young people and newcomers to the country to buy homes, Canadian mortgage industry leaders say.
The stress test requirement came into effect in January. Anyone taking out an uninsured mortgage must be able to prove that they could continue to make their payments if their interest rate rose by two per cent, or to two per cent more than the Bank of Canada’s five-year benchmark rate.
Real estate analysts warned before the change came into effect that the test could push some prospective homebuyers out of the market.
According to the Canadian Real Estate Association, home sale levels hit a three-year low in January, as sale volume saw its biggest month-over-month drop since the 2008 recession. Residential real estate activity remained slow into the spring before rebounding somewhat in the summer.
The latest data, which was released Monday, showed a slight month-over-month decline in September.
“The government’s recent policies stifled the hopes of aspiring homeowners,” Mark Kerzner, Mortgage Professionals Canada board member, said Tuesday at a press conference.
Kerzner said the stress test has likely been a large factor in a housing sales slump seen across most of the country this year. He said he had heard of complaints from people who want to buy houses but no longer qualify for financing and people who want to sell their houses and are receiving less interest than they expected.
The Mortgage Professionals Canada industry group took its case to Parliament Hill on Tuesday, meeting with MPs and talking to reporters about an issue that they say disproportionately affects single parents, millennials and people who have recently arrived in the country.
“Our members have seen, firsthand, a significant portion of aspiring Canadians who have been pushed out of the market,” Kerzner said.
The slowdown has also apparently had a knock-on effect on the rental market. With young Canadians needing more time to save up for a house,Kerzner said, they are staying longer in rental stock – pushing vacancy rates down and rental prices up.
“I would suggest that the Liberals are acutely aware that millennials are a large voting demographic … and individuals whose interest they are looking to protect long-term,” Mortgage Professionals Canada president Paul Taylor told reporters.
Taylor questioned the need for the government to guard against the risk of homebuyers defaulting on their mortgages, saying fewer than 25 out of every 10,000 mortgagees in Canada are behind on their payments.
Mortgage Professionals Canada has made several recommendations on the issue to the federal government, including lowering the stress test threshold to 0.75 per cent above the contracted mortgage rate and giving municipalities interest-free loans to prepare new residential lands for development.
Mortgage Professionals Canada also wants the government to create an exemption to the stress test for previously qualified mortgage holders who want to switch banks at the end of their term. People looking to renew a mortgage with the same bank are already exempt.
Conversations with federal officials have suggested that the government is “considering various options” to address housing affordability, Taylor said.