Housing affordability could deteriorate in markets across Canada if the federal government moves forward with proposed changes to residential mortgage regulations, says the British Columbia Real Estate Association (BCREA).
Last month, the Office of the Superintendent of Financial Institutions (OSFI) released draft changes to its Guideline B-20 — Residential Mortgage Underwriting Practices and Procedures, which included implementing a qualifying stress test for all uninsured mortgages.
According to the federal watchdog, these amendments are necessary to address record levels of household indebtedness and growing risks and vulnerabilities in some housing markets across the nation.
However, in a letter addressed to OSFI last week, BCREA came out against the proposed changes citing Canada’s housing market is still coping from recent amendments to mortgage lending regulations and the Bank of Canada prime rate increase last month.
"There's a lot of concern from our members that if the government goes ahead and requires a qualifying stress test for uninsured mortgages then it could really have a negative impact on the housing market,” says Damian Stathonikos, BCREA’s Director of Communications and Public Affairs.
OSFI’s suggestions also include the adjustment of loan-to-value measurements for local market conditions and prohibiting co-lending arrangements that avoid regulatory requirements.
If the stress test is approved for all uninsured mortgages, Stathonikos says higher interest rates could push homebuyers out of the market, as they will no longer be able to afford their purchase.
The impact could be greater for first-time homebuyers who are already faced with sky-high real estate prices in the Lower Mainland.
Even if they have arranged a mortgage rate with their financial institution and secured a large enough down payment, Stathonikos says that would be irrelevant if a mandatory stress test came into play.
“[A]ll of a sudden now they're [first-time buyers] having to qualify several percentage points higher than what they had already negotiated with their financial institution,” says Stathonikos.
Besides putting impacting affordability, introducing a stress test for all uninsured mortgages could imbalance local markets across the nation and negatively impact the Canadian economy, says BCREA.
In July, the Bank of Canada increased its prime rate by 25 basis points and many economists predict that the rate will rise again in October.
If this happens, it would collide with OSFI’s proposed changes and potentially have dire effects on the housing market.
"With an additional rate increase you'd see yet one more hurdle put in the way of people who want to become homeowners,” says Stathonikos.