Pressure mounts on Ottawa to revise mortgage rules

by Neil Sharma on 08 Feb 2019

The Toronto Real Estate Board has formally called on Ottawa to revisit the B-20 mortgage stress test.

In a statement, TREB’s CEO John DiMichele extolled government action on key housing files, but panned the Office of the Superintendent of Financial Institutions-mandated stress test, which he says, combined with rising interest rates, is creating a perfect storm for buyers. Additionally, he says that B-20 is ruinous for the economy.

“One area that needs to be revisited is the imposition of the OSFI-mandated two percentage point mortgage stress test,” said DiMichele. “While we saw buyers return to the market in the second half of 2018, we have to have an honest discussion on whether or not today’s homebuyers are being stress tested against rates that are realistic. Home sales in the GTA, and Canada more broadly, play a huge role in economic growth, job creation and government revenues each year. Looking through this lens, policymakers need to be aware of unintended consequences the stress test could have on the housing market and broader economy.”

The mortgage stress test is not just proscriptive for buyers on the outside looking in. Mortgage borrowers due for renewal will be stress tested if they shop around for better rates, but if they choose to remain with their current lender they’ll be at the latter’s mercy.

“Banks have full control and are holding them as hostages,” said Shawn Zigelstein, a sales representative with Royal LePage Your Community Realty. “They will either have to stay with their current bank, which won’t offer a competitive rate, or shop the mortgage around but have to qualify with the stress test.”

Being stuck with a lender might also be the least of their problems. As growing families pressed for room are finding, the stress test reduces buying power and, in the process, sets off a chain reaction.

“People will have to stay where they are from a banking standpoint and also from a housing standpoint because they can’t move up the housing ladder,” said Zigelstein. “I’ve had clients who have had to qualify at $750 to $1,000 more a month than their actual payments. This reduces their affordability, which means that they can’t buy the property they want and have to stay put, which means the people who wanted to buy their house won’t be able to.

“Qualification and what you can afford are two very different things.”

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