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

Alberta RCMP launches online crime reporting across the province

A goal for the Alberta RCMP is to make sure all crime is reported, no matter how small

Looking back – the enduring legacy of Clark Burlingham

Burlingham was the Town’s first recreation director

Alberta reports 257 new cases of COVID-19

Central zone has 157 active cases

New hospice suite officially opened at Points West Stettler on Aug. 7th

“As soon as you walk into it, it’s comfortable which makes it easier for a guest to settle into right away.”

Charges likely in fatal attack at central Alberta medical clinic: RCMP

A vigil was held Monday night to mourn the victim

Donations pour in for family of doctor killed in Red Deer attack

Man has been charged in connection to death of Red Deer doctor

Man, 54, charged in connection with fatal attack of Red Deer doctor

Doctor was killed in his walk-in clinic on Monday

Vigil held in Maskwacis for 10-year-old boy

Samson Cree Nation comes together for comfort, console each other

Cuts to environmental monitoring budget In Alberta’s oilsands are viewed as reckless

The 2019-2020 budget saw $58 million dollars being dedicated to environmental monitoring

Over half of Americans oppose Trump tariff on Canadian aluminum: survey

The survey was conducted Aug. 7 to 9 among 1,513 Canadians and 1,003 Americans

Police investigating after insults, expletives yelled at federal minister’s staff

A 90-second video circulating on social media appears to have been shot by the person who was yelling

Rent-relief program becomes new front in fight between Liberals, opposition

Opposition trying to draw parallels between decision to have Canada Mortgage and Housing Corp. run program and the WE controversy

Ottawa sets minimum unemployment rate at 13.1% for EI calculation

Statistics Canada says the unemployment rate was 10.9 per cent in July

Most Read