Recently representatives of Mortgage Professionals Canada met with dozens of members of Parliament and senior government officials to discuss housing affordability, availability and accessibility, and to outline concerns about the government’s changes to mortgage qualification rules that were introduced last fall.
“I am extremely pleased that there is a real sense that members of Parliament are listening to the concerns from our industry,” said Paul Taylor, president of Mortgage Professionals Canada in a news release. Taylor added that their recent meetings with government officials are “educating members of Parliament on the positive role that mortgage brokers play in the Canadian housing market and the negative impacts that recent changes are having on first time homebuyers.”
REM recently spoke with Taylor in a one-on-one interview.
Paul Taylor
REM: From the press release sent out, affordability and accessibility for first-time and other buyers have some real challenges. What are those challenges?
Paul Taylor: The government’s intention in requiring borrowers that are purchasing an insured mortgage to qualify for their “stress test” is (over) two per cent more expensive than the street rate.
You can probably qualify for a five-year fixed rate mortgage today somewhere around 2.5 or 2.6 per cent interest rate as long as your credit is good. But the Bank of Canada rate today is 4.64 for a five-year fixed mortgage. So those first-time purchasers who have less than 20 per cent down payment have to buy mortgage insurance and because they have to buy insurance, they have to show that they can manage an interest rate of 4.64 even though the mortgage will be issued at two and a half.
The intent from the government’s perspective is to make sure that if there was an interest rate increase, that Canadians didn’t find themselves underwater and can meet their financial obligations.
REM: So how do you address this issue?
Taylor: We’ve asked for a reduced number. I think that having the stress test in and of itself is not a bad idea, but the dislocation between 2.5 per cent and 4.64 per cent is quite a lot. When you run these numbers based upon average Canadian households, you end up with about a 20 per cent reduction in purchasing power.
So when we look at an $80,000 household income, which was the average Canadian income in 2015, those folks at a 2.5 per cent interest rate would be able to borrow about $400,000. At a 4.64 interest rate they can borrow about $320,000. The options for homes they can realistically afford now are at the bottom end.
I’ve had a number of conversations with the Ministry of Finance office and the government’s intention with these changes has got nothing to do with market pricing. The changes are very specifically to try to reduce the overall liability of the Canadian government.
REM: If the Bank of Canada rate is 4.64 and the street rate is 2.5, what do you suggest it should be?
Taylor: (It should be) 3.25 probably. It adds a bit of buffer and ensures that people have a little extra money in their budget than is required to meet their mortgage payments, but it also doesn’t reduce purchasing power by 20 per cent. It only brings you down maybe eight or nine per cent.
REM: What did you hope to achieve in your discussions with members of Parliament on this issue?
Taylor: We are essentially trying to get MPs across the country to understand the impact that this purchasing price reduction is going to have in their riding.
REM: Are they listening and do they understand?
Taylor: They definitely are and to their credit every MP that we spoke to (realizes) that housing is an important topic for everybody.
REM: Is the perfect outcome from all this that the MPs go to the Minister of Finance and try to get the rate down?
Taylor: Essentially, yes. Our hope is that the MPs across the country can work with the Ministry of Finance and gather appropriate data from their own ridings about the impact this is having to the number of sales, the difficulty some of these folks are having getting into their first home, and what the potential impact it actually has on the rental markets as well. This is because if people are forced to rent longer, that is going to reduce the supply of rentals and might actually push costs up as well.
All of these things will make the economic plight of young, middle-class Canadians more difficult.
Jon Hiltz submitted this column on behalf of WAYRA Spanish School. He has been a journalist for over a decade, writing for major publications in Canada and internationally.
