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

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

COVID-19 cases in Alberta up by 153 Wednesday

Central zone sits at 19 active cases

Sylvan Lake family says they are ‘blessed’ to have found their home in Central Alberta

Onsy and Rosemary Tawadrous immigrated to Canada in 2011 and made their home in Sylvan Lake

160 new COVID-19 cases reported in Alberta on Tuesday

Province now has 1,571 active cases

Town of Sylvan Lake chooses projects for Municipal Stimulus Program

Municipal Stimulus Program is for “shovel-ready” infrastructure and part of Alberta’s Recovery Plan

Town of Sylvan Lake introducing strategies to reduce pressure of taxes in upcoming budget

The Town is in the early phases of planning the 2021 Budget, want to maintain current service levels

No safe mask option for bearded members, RCMP says, but force is exploring solutions

RCMP says respirator not mandatory in all front-line situations, but sometimes needed to reduce risk

Health Canada green-lights rapid COVID-19 test

Health Canada approved the BCube test from Hyris Ltd. in the United Kingdom Sept. 23

Albertans the speediest behind wheel, according to national dangerous driving survey

Finder.com looks into dangerous and reckless driving habits across the country

Metis pilot Teara Fraser profiled in new DC Comics graphic novel of women heroes

The Canadian pilot’s entry is titled: ‘Teara Fraser: Helping Others Soar’

Leduc Man still missing, RCMP concerned for his well being

31-year-old Ryan Mcleod has been missing since Sept. 10, 2020.

Tractor fire east of Ponoka doused

Flames extinguished with foam additive

Wetaskiwin restaurant asks City for help with excessive property damage caused by continuous loiterers

Employees say that they are scared for themselves and their customers.

Orange Shirt Day lessons of past in today’s classrooms

Phyllis Webstad, who attended St. Joseph’s Mission Residential School in British Columbia, is credited for creating the movement

Most Read