Mortgage brokers say the borrower rejection rate from large banks and traditional monoline mortgage lenders has gone up as much as 20 per cent after Canada's banking regulator imposed a new stress test for home buyers who don't need mortgage insurance. Sean Kilpatrick / THE CANADIAN PRESS
Stuart Thomson, March 21, 2019
The reviews have been mixed on the merits of the governmentâ€™s new scheme to help first time home buyers, but there is consensus emerging that the effects wonâ€™t be felt in the housing market until as late as 2021.
â€œThe real impact of this is probably two years away,â€� said Paul Taylor, the CEO of Mortgage Professionals Canada.
The first time home buyers incentive plan, announced in Tuesdayâ€™s budget, gives buyers with a household income below $120,000 an incentive of up to 10 per cent of the mortgage amount. That will lower mortgage payments, but the buyer still has to pay the full down payment and the incentive funds will have to be repaid to the government.
The incentive on existing homes is five per cent and up to 10 per cent on newly constructed homes, which the government hopes will juice new construction in markets that are struggling with low supply.
The incentive program requires legislation to pass through Parliament, with the launch planned for September. Taylor worries that the delay could see a stark pause in construction as buyers bide their time for the next six months.
â€œYou are going to get people just waiting,â€� he said.
Capital Economics, an economic research firm, agreed with Taylorâ€™s concerns in an analysis released on the heels of Tuesdayâ€™s budget.
â€œIt will be at least 18 months before any meaningful boost to construction from the equity loan scheme is felt. In the meantime, the softness of new home sales means that new construction is set to fall sharply,â€� the report reads.
Potential home buyers and industry representatives had been calling for a variety of measures in response to worsening affordability across the country, like an easing of the mortgage stress test or beefed up credits for buyers.
Taylor had been calling for the maximum amortization period of a mortgage to be boosted to 30 years, from the current 25 years. The incentive plan â€” which comes in the form of shared equity mortgages through the CMHC â€” surprised him but heâ€™s not necessarily opposed to the idea.
â€œIâ€™m not concerned but Iâ€™m a little puzzled by it. Itâ€™s a different mechanism, for sure,â€� said Taylor. â€œThe fact that theyâ€™re trying to do something creative actually doesnâ€™t worry me.
â€œ(But) most of our community is really quite disappointed that there wasnâ€™t some easing of the stress test or the introduction of a 30-year amortization,â€� he said.
Francis Fong, the chief economist at the Charted Professional Accountants of Canada, said the CHMC is embarking on a new frontier as it acquires a direct stake in the residential mortgage market, rather than just providing insurance. That new frontier also means a new form of risk for the CMHC.
â€œThatâ€™s why I am so glad they didnâ€™t let up on the mortgage stress test,â€� said Fong.
The idea of the CMHC taking a stake in mortgages may bring up faint memories of the 2007 subprime mortgage crisis in the United States and Fong said he gets a â€œjittery feelingâ€� about that, but that all the data suggests there isnâ€™t much to worry about.
â€œAre we there? The answer is categorically no,â€� Fong said. Credit quality has been getting better and â€œthe evidence speaks for itself, so at this stage Iâ€™m not worried about it.â€�
Along with all those positive indicators, the new $1 billion program adds up to less than one-per-cent of the total amount of mortgages insured by the CMHC.
Fong said his preferred solution would be an expansion of one of the under-the-radar measures announced in the budget designed to get more houses built, which would eventually put downward pressure on prices.
An expert panel was created in British Columbia to advise on solutions for boosting housing supply and the government also announced a $300 million program for municipalities and other groups across Canada to propose creative solutions to the problem.
Those initiatives show â€œthey donâ€™t have the answer, bottom line,â€� said Fong. â€œIt also shows theyâ€™re grappling with the role of the federal governmentâ€� in addressing the housing supply problem.
NDP MP Peter Julian, who represents a B.C. riding, said they governmentâ€™s incentive program will simply boost prices without actually helping anyone get into the market.
â€œWhat troubles me is that itâ€™s not an effective approach. It seems to be kind of a throwaway program,â€� said Julian, who expects the housing issue to haunt the Liberals in the upcoming federal election.
â€œI think they have misread the public mood and they have certainly misread how Canadians view the housing crisis.â€�
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