New mortgage rules could hit first-time buyers hard
Bob deWit
The Province
A commonly shared wisdom among all levels of government and industry is that it’s critically important to protect the interests of first-time homebuyers and those at the lower end of the real estate home ownership ladder.
Home ownership is a good thing: It would be hard to find anyone to argue with that. That’s why I was surprised to see a policy announcement from our federal government that, although seemingly subtle, will have a huge impact on the ability of entry-level buyers to own a home or move up in the market.
On Oct. 3, Finance Minister Bill Morneau announced a series of proposed changes to federal policies and legislation affecting mortgage loan insurance, mortgage lending rules and tax treatment of capital gains from principal residences for foreign buyers.
Of particular concern is the “stress test,” whereby all insured homebuyers must qualify for a mortgage at the Bank of Canada’s conventional five-year fixed posted rate, which is significantly higher than actual rates.
This will dramatically reduce the mortgage amounts available to buyers, locking out many first-time buyers trying to buy entry-level units and potentially disqualifying buyers who have already qualified, but not yet secured their mortgage. Conventional mortgages will also be affected by new portfolio insurance rules and this will further impact the market, although the extent of these impacts remains unclear.
The Canadian Home Builders’ Association — of which the organization I lead is affiliated — has just released a study on the impacts of the measures, which estimates that one-quarter to one-third of first-time buyers could be removed from the market and that the measures overall will reduce housing activity by six to 10 per cent. This is obviously a serious concern.
Preventing home ownership is a politically risky move, not to mention economically reckless. If the government persists with these measures and the reduced demand translates to fewer homes built, the economic impact of a 10 per cent reduction in housing activity is worth roughly $6 billion in GDP.
Sometimes the seemingly smallest changes can have the biggest impact.
Let’s hope the federal government reconsiders their direction on this one. To make sure they do, don’t be shy about letting your feelings known to your local member of parliament.
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