The Stress Test and CHBA Recommendations 2019

The Stress Test and CHBA Recommendations

Current federal government restrictions on mortgage lending are having very negative impacts on our industry, and on prospective home buyers. Younger, first-time home buyers – who play a critical role in housing markets – are the hardest hit. Far too many have simply been locked-out of home ownership.

With the next federal election less than a year away, and a pre-election budget scheduled for late this winter, CHBA is taking aim at the two specific mortgage rules and advocating for much-needed changes. CHBA is pressing the government to:

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Reintroduce 30-year mortgages for first-time home buyers. The market share for insured mortgages (used by most first-time buyers) has been cut in half in recent years. Re-qualifying 30-year mortgages for insurance would increase first-time buyers purchasing power by about 20 percent.
Overhaul the current stress test for mortgages, reducing the added stress test interest rate factor from the current 2 percent above the contract rate, to as low as .75 percent for five-year locked-in mortgages. At current rates, this would reduce the stress test on five-year mortgages from 5.7 percent to 4.45 percent, allowing many more well-qualified to secure a mortgage.

More details on these recommendations can be found here in our submission to Minister Morneau, which we also provided to the Housing Affordability Caucus.

CHBA has been very active in advocating for these changes, right up to the Prime Minister’s Office, and our recommendations are in with the Minister of Finance for consideration in the budget, currently being finalized by the government. We’ve been successful in having the government form a Housing Affordability Caucus, with whom we’ve met twice, and we are in discussion with government officials in various departments. This will also be a focus of our Day on the Hill in late February.

Our recommended changes are balanced, responsible and prudent, and they directly address the unfairness of current federal mortgage restrictions.

Neither measure will cost the federal government money, or materially increase the risk to either lenders or borrowers. And both will remove significant barriers to home ownership for tens of thousands of hard- working Canadians, particularly first-time buyers, wanting to achieve their home ownership dreams.

Financial and market conditions have changed. Mortgage restrictions need to change to. CHBA’s common sense recommendations will ‘unlock the door’ for many Canadians who have earned a fair shot at home ownership.

KEY CONSIDERATIONS AND BACKGROUND

It is important to note that the government has heard from both its own experts and from international bodies that measures that were brought in recent years for mortgages are having desired effect of ensuring Canadians do not purchase homes beyond their means and as such leading to a soft landing for the housing market thereby preventing a collapse at the market.
However, the party is under pressure (as shown by CHBA’s polling results, for example) to address the affordability challenges now facing Canadians, particularly given this is an election year.
The International Monetary Fund, Bank of Canada, Department of Finance, CMHC, Office of the Superintendent of Financial Institutions (OSFI), and other major economic players all felt that the housing market and debt-to-income ratios needed to be reined in. Their position is that the stress test and other mortgage rule changes have done a necessary job.
Members of Parliament recognize that Canadians are not happy with the housing affordability challenges, now further compounded by mortgage rule changes, that are locking so many out of homeownership. They realize it is an election issue. They are looking for solutions—the launch by the Liberals of the Housing Affordability Caucus shows their concern over the issue.
The Association angle is that it is indeed a huge election issue; the government has likely overshot their own targeted outcomes; this is detrimental to Canadian families and the economy.
The Association therefore recommends the return to 30-year amortization periods and adjustments to the stress test. These do not need to be perceived as reversing policy, but refining it given current market and economic conditions, to allow young and new Canadians to responsibly enter homeownership to the benefit of all.

MP TOOLKIT

Financial and market conditions have changed. Mortgage restrictions need to change too. CHBA’s common sense recommendations will make home ownership attainable for many Canadians who have earned the opportunity.

How you can lend your voice to the cause:

Write a letter (via e-mail is fine) to your MP and/or
Meet with your MP (especialy Liberal MPs who are feeding into the federal 2019 budget process now)

Whether you write to your MP, meet with your MP, or both, the following approach will have the most success.

STEP 1 STEP 2 STEP 3 STEP 4

STEP 1

SET THE LOCAL STAGE

Tell your MP how the stress test is affecting homebuyers in your area. Your first-hand testimony and examples paint the picture of how their constituents are being affected. You will likely want to touch on the following if you are experiencing them, giving real examples of each:

"Our well-qualified buyers are being turned down by banks." Give examples of your buyers who no longer qualify – how old are they, what jobs do they have, were they excited to own a home?
"So many buyers being locked out is having severe effects on our business." Discuss how your business is being hurt. Have you had to lay off employees? Are you investing less?
"Those who do qualify are, in many cases, being forced into riskier mortgages (short-term, variable rate) and/or more expensive mortgages from private lenders." Give examples of what kind of choices buyers now have to make.

STEP 2

INTRODUCE CHBA'S RECOMMENDATIONS

After you've given your MP real examples of the problem, tell them CHBA's recommendations on how to alleviate it.

Bring back 30-year amortization periods for first-time buyers. The market share for insured mortgages has been cut in half in recent years. Re-qualifying 30-year mortgages for insurance would increase first-time buyers purchasing power by about 20 percent.
Overhaul the current stress test mortgages for those who are locking in to five-year mortgages. Reducing the added stress test interest rate factor from the current 2 percent above the contract rate, to as low as .75 percent for five-year locked-in mortgages, would allow many more well-qualified to secure a mortgage. At current rates, this would reduce the stress test rate on five-year mortgages from 5.7 percent to 4.45 percent.

If you want more details on these recommendations, or your MP does, you can find those here (you can provide this to your MP after he/she has requested more information).

STEP 3

IF YOU WISH TO GO FURTHER, EXPLAIN WHY THESE RECOMMENDATIONS ARE BALANCED, RESPONSIBLE, AND ADDRESS THE UNFAIRNESS OF CURRENT RESTRICTIONS

They won't cost money for the federal government.
They won't increase risk to either lenders or borrowers. (In fact, changing the stress test as recommended would encourage people to lock in to lower-risk, longer-term fixed-rate mortgages. Right now, the stress test is causing people to take more risks by pushing them into variable-rate, short term mortgages.)
They will remove significant barriers to home ownership for the tens of thousands of hard-working Canadians – particularly first-time buyers – who have earned a fair shot at home ownership.

Answers to MP questions/concerns can be found in this handy reference sheet.

STEP 4

HOW TO CONTACT YOUR MP

Find your MP here, searchable by postal code.
Send an email to convey your concerns. (If you need assistance composing an email, here is a template you can personalize).
If you wish to meet your MP, in your email request a meeting at a date/time that is convenient for the MP, noting the reason why you'd like to meet. Then make a follow-up call and ask to speak with the MP’s scheduling assistant
If the MP can't meet in person, ask the scheduling assistant if a phone meeting could be scheduled. (MPs make time for calls from their constituents even when the House of Commons is sitting.)
If you need help or advice, contact CHBA's government relations team at gr@chba.ca.
If a meeting can't be scheduled and you haven't sent the information about your concerns and experiences already, send the MP an email that summarizes the issue and provides the key recommendations.
Please let CHBA know if you send a letter/email and/or meet with your MP by emailing gr@chba.ca