Federal Finance Minister Bill Morneau is facing growing pressure from Canada’s real estate industry to use his March budget to help first-time homebuyers as house sales continue to slump in many major markets.
In recent weeks, organizations representing real estate agents, home builders and mortgage lenders have separately met with government officials and politicians to pitch their lists of reforms.
While there is no broad industry consensus about what changes are needed, the main proposals on the table include modifying new mortgage stress-test qualifying rules, expanding the 25-year amortization period for insured mortgages, increasing the amount first-time buyers can take from their registered retirement savings plan for down payments, and raising the first-time homebuyer tax credit.
The lobbying comes as home sales have slowed in most markets in Canada, particularly in the Vancouver and Toronto regions. On a national basis, home sales fell 11 per cent in 2018 over 2017, including a 32-per-cent drop in the Vancouver region and a 16-per-cent decline in the Greater Toronto Area.
Mortgage Professionals Canada, an industry association for mortgage brokers and lenders, has met with Liberal and Conservative MPs to lead the charge for relaxing the government’s mandated mortgage qualification stress test, arguing it is shutting too many buyers out of the market, particularly first-time buyers.
The stress-test rule, introduced Jan. 1, 2018, for uninsured mortgages, requires buyers to prove they can still afford their mortgage even if interest rates were 200 basis points – two percentage points – above the negotiated borrowing rate.
Paul Taylor, chief executive officer of Mortgage Professionals Canada, said interest rates have risen five times since mid-2016, which has helped cool down overheated housing markets, and it is not necessary to ensure borrowers can withstand such a large increase in rates. He is urging the federal government to require borrowers to qualify at a rate 0.75 per cent above the negotiated rate.
“I think given the slowdown that we’re seeing in housing activity, it’s pretty easy to suggest that maybe they overshot with a 200-basis-point stress test,” he said.
His association has also asked the government to extend the 25-year maximum amortization period for insured mortgages to 30 years for first-time buyers, reducing their monthly mortgage costs.
“It’s very targeted specifically at the people at the bottom end of the ladder,” he said.
The extended amortization measure has also been championed by the Canadian Home Builders’ Association, which met in recent weeks with officials from Mr. Morneau’s office and the Prime Minister’s Office, and by mortgage insurer Genworth MI Canada Inc., the country’s largest private-sector mortgage insurer.
Genworth CEO Stuart Levings said uninsured borrowers – those who have at least 20-per-cent down payments – can already get 30-year amortizations, and adding another five years for insured mortgages would mostly help first-time buyers.
Mr. Morneau has not revealed any specifics about what he will do, but has signalled the budget will have measures to help younger homebuyers “have optimism” that they can afford homes.
“I’ve said very clearly that we will continue to think about housing affordability across our country, how we can make sure that people have access to affordable housing,” he told reporters on Friday in Toronto.
The Canadian Real Estate Association (CREA), which represents real estate agents countrywide, is not joining the lobbying for relaxing the stress test.
CREA CEO Michael Bourque said he does not believe the government is likely to amend the rule just a year after introducing it, although he said it should be monitored so it doesn’t go too far and harm the economy.
“The fact is that it was brought in for a reason, and the people who brought it in feel very strongly that those reasons are still valid,” he said.
Instead, Mr. Bourque said he wants to see the government focus on the program that allows first-time buyers to withdraw up to $25,000 from their RRSPs to use for a home down payment. The $25,000 threshold hasn’t changed in a decade, and CREA is recommending a further $15,000 increase to a maximum of $40,000.
“It’s actually surprising it hasn’t gone up with inflation or something – it’s overdue,” he said.
CREA is also urging the government to raise the $750 tax credit for first-time buyers to $2,500. The credit was designed in 2009 to help new buyers cover expenses that arise when purchasing a home, but Mr. Bourque says the level is too low to cover many costs.
Although CREA is not pushing reform to the mortgage stress test, some people within the real estate broker community are championing change.
Phil Soper, CEO of Royal LePage, said he supports the existing stress-test for most buyers, but would like to see it lowered to 1 percentage point for first-time buyers, arguing it would add minimal additional risk to the financial system.
Christopher Alexander, regional director for Re/Max in Ontario and Atlantic Canada, is advocating for lowering the level for all buyers, saying it is too tough a hurdle.
“I think asking people to qualify at an unreasonable rate is just not working – I don’t think it’s very responsible,” he said. “Two per cent is unrealistic, that’s the bottom line.”