Conservative leader Andrew Scheer鈥檚 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.
鈥淥h my god, here we go again,鈥� said Tsur Somerville, a professor at the Sauder School of Business at the University of British Columbia, when he heard Scheer鈥檚 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 鈥� reversing moves by Stephen Harper鈥檚 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 鈥� introduced in 2010 and significantly modified in 2018 鈥� 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 鈥減rotect our economy from potentially tragic consequences.鈥�
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鈥� promises or announcements during the election period.
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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.
鈥淩ealtors have long asked for common-sense solutions designed to help Canadians purchase a home of their own,鈥� said Jason Stephen, the Canadian Real Estate Association鈥檚 president, adding Scheer鈥檚 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鈥� 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 鈥� a figure that includes consumer credit, mortgages and non-mortgage loans 鈥� for every dollar of their disposable income, according to Statistic Canada鈥檚 most recent figures.
鈥淚f we鈥檙e concerned about Canadians鈥� level of debt, why are we helping them take on more debt?鈥� asked Somerville.
Aleksandra Sagan, The Canadian Press
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