In an impassioned submission to the federal Standing Committee on Finance, the country’s largest mortgage brokerage has hit back against strict new mortgage qualification rules, arguing that they are putting home ownership out of reach for many thousands of first-time and lower-income buyers.
Gary Mauris, president and CEO of Dominion Lending Centres (DLC), said in a press release, “While we understand and agree with the government’s desire to protect consumers, DLC fundamentally disagrees with the proposed approaches to do so, as it will make housing less affordable for the middle class. Our submission outlines several ways to encourage affordability and if the government chooses to work with industry, their proposals can be positively amended to ensure that Canadians have the best chance of achieving their home-ownership dreams.”
Mauris made the DLC’s submission ahead of the January 30 federal finance committee hearing, at which it was discussed by MPs, Bank of Canada representatives and Office of the Superintendent of Financial Institutions representatives.
The brokerage wrote in the brief: “All new mortgages [with a down payment of less than 20 per cent] now need to qualify at the greater of either the Bank of Canada posted rate (4.64 per cent) or the contract rate. The net effect on first-time home buyers is that their purchasing power has been reduced by upwards of 20 per cent, which has significant impacts on many marginal buyers. Not only does the stress test reduce purchasing power, it makes housing less, rather than more affordable.”
The submission included two case studies of would-be buyers whose plans for home ownership were hindered by the introduction of the stress test.
These examples were echoed during the committee hearing, at which Dan Albas, Conservative MP for Central Okanagan-Similkameen-Nicola, said that many of his constituents were feeling the negative impact from the policy.
“I’ve had people from around my riding, especially young people, who have felt that they were on a good path towards home ownership and, because of these rule changes, that’s been pushed back.
“Most of us would agree that home ownership has served Canadians quite well, and people can store away equity over the long term. This policy is preventing young people from having the benefits of home ownership enjoyed by 69 per cent of Canadians.
“There is not one Canadian real estate market, there are many smaller and larger markets, and this policy has been described as applying a sledgehammer to a very specific problem [lack of affordability in markets such as Vancouver and Toronto].”
Sylvain Leduc of the Bank of Canada replied that it was known that the policy would “reduce demand at the margin” but that total consumer debt was a problem in many regions across the country, and that the stress test was designed to ensure all Canadians were not taking on more debt that they could pay off.
Albas replied, “Spinning this policy as helping people by not letting them get into debt – that’s not how those people feel.”
DLC’s submission concluded, “The real culprit to lack of affordability is supply. To make housing more affordable without adding supply means housing prices must fall, which has a net-negative effect on the financial security of Canadians. At the same time, measures to make mortgages more difficult to obtain result in reduced housing affordability. By making housing less affordable and reducing demand (impacting home values), we are unintentionally widening the wealth gap for middle-class Canadians.
“We would strongly urge government to focus its affordability efforts with a robust strategy that involves city planners, developers and municipal and provincial governments looking at innovative ways to expediently increase the housing stock, both for home ownership and for rental.”