Conservative Leader Andrew Scheer is promising that, if he’s elected, he’ll 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.
The stress test, introduced by the Office of the Superintendent of Financial Institutions (OSFI) last year, is a financial bar that any Canadian looking to take out a mortgage must pass.
It requires that prospective homebuyers 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 are promising to review the application of the test for new buyers and eliminate it altogether from mortgage renewals.
Scheer said the test goes too far and has unintended consequences.
“A new Conservative government will fix the stress test to make sure first time homebuyers can get access to a mortgage,” he said while unveiling a housing plan during a campaign stop in Vaughn, Ont. Monday.
CIBC published a report earlier this year calling for a review of the stress test after it found the test accounted for at least half of the decline in new mortgages started in 2018.
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 — and calls for the test to be revisited.
Scheer said a Conservative government also would allow people to take out 30-year mortgages, up from the current 25-year limit.
“It is important that we have strong regulations around the financial sector to ensure that our housing industry and our mortgage industry is strong and robust, but we believe that for first-time home buyers a 30-year amortization period is appropriate,” he said.
“Young first-time home buyers often have their highest earning years ahead of them. And so, as they get promoted and as their incomes go up, they’ll be able to carry the mortgages that they’ve gotten into.”
Surplus federal real estate for development
The Conservative Party is also promising to launch an inquiry into money laundering in the real estate sector and make surplus federal real estate available for development.
The moves drew praise from some industry associations.
The Canadian Real Estate Association said the longer mortgage element would “ultimately [provide] greater flexibility for home buyers looking at financing to purchase a home of their own.”
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.”
The Liberals revealed their housing plan on the first full day of the campaign, pledging to expand the First Time Home Buyer Incentive program introduced with this year’s budget.
The program 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.
In February, the Liberals announced plans to turn surplus federal properties into new affordable housing.