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Scheer vows to review mortgage stress test, allow for longer mortgages

This week the Conservative Leader Andrew Scheer promised to review the so-called “stress test” to help first-time homebuyers get approved for mortgages and allow people to take out longer mortgages for lower monthly payments. This leaves many Canadians wondering if this was something off the Conservative party platform as it sounds like something the Liberals would promise.
The stress test currently in place requires prospective homebuyers to prove they can service an uninsured mortgage at a higher rate than they qualify for, in order to receive a loan from a federally regulated lender. The idea is to protect borrowers from taking on more debt than they can handle and ensure they have some financial leeway if rates rise.

The Conservatives think that this is a bad idea and are promising to review the application of the test for new buyers and are vowing to work with OFSI to eliminate it altogether from mortgage renewals.

Scheer said the test goes too far and has unintended consequences.

CIBC published a report earlier this year calling for a review of the stress test. In 2018, the total value of new mortgages fell by eight per cent, or $25 billion, it said. The report estimates the impact of the new stress test accounted for $13 billion to $15 billion of that drop — or 50 to 60 per cent.

Scheer said a Conservative government also would allow people to take out 30-year mortgages, up from the current 25-year limit.

The Canadian Home Builders’ Association, which had been pushing for changes to the stress test, said the announcement would help “well-qualified first-time buyers that have been locked out of home ownership in recent years.”

Meanwhile the Liberals plan is to expand on the First Time Home Buyer Incentive program which is available to first-time homebuyers who earn less than $120,000 a year, but under the expanded program those with incomes up to $150,000 would qualify.

The current stress test which is a good idea has created some unintended consequences, one of which is the rise of private lenders and credit unions that don’t have to put their customers through the stress test. This is allowing thousands of home buyers who would otherwise never pass the stress test to get into the market through the backdoor.

Secondly, it is just as difficult for first-time homebuyers to afford a home and builders are either cancelling or delaying projects. This is creating a future housing shortage and the increase in rents. Many homebuyers who would otherwise have bought homes are forced to rent longer. -CINEWS


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