Tories pledge to boost mortgage repayment periods for first-time buyers

[Globe and Mail – September 23, 2019]

Conservative Leader Andrew Scheer said a Tory government would review the mortgage stress test and expand repayment periods, proposals that would partly reverse Ottawa’s efforts to discourage homebuyers from taking on too much debt.

Mortgage brokers warned that Mr. Scheer’s plan could push housing prices higher, if consumers used their expanded purchasing power to buy more expensive homes.

Much like a Liberal announcement earlier in the election campaign, the Conservatives’ housing plan is geared primarily toward home ownership rather than expanding rental options, and it aims to appeal to millennial voters who want to buy a house. But the proposals would apply to a wider array of potential buyers.

Mr. Scheer promised to increase the maximum amortization period on insured mortgages to 30 years for first-time buyers from 25 years currently, which would give buyers more time to repay a mortgage and lower their monthly payment costs as a result. In Canada, mortgages must be insured when the buyer brings a down payment of less than 20 per cent of the purchase price. (Uninsured mortgages can already last 30 years.)

The federal government has changed the rules for amortization periods a number of times in the recent past – allowing them to expand as long as 40 years, then ratcheting them back as it became clear that longer repayment schedules were adding fuel to a hot housing market. The previous Conservative government of Stephen Harper cut mortgage amortizations three times in a four-year period, lowering them from 40 years to 35 in 2008, then to 30 years in 2011 and finally 25 years in 2012, all aimed at curbing rising debt levels.

While the Conservative Leader pledged to review the mortgage stress test if elected, he made no specific promises to ease the test level, which has been a demand from many lobby groups in the real estate sector.

The stress test, introduced at the start of 2018, requires buyers to prove they could qualify for mortgages, even if interest rates were two percentage points higher than the level they negotiated with their lender. Some have suggested it could be lowered to one percentage point or less.

Mr. Scheer detailed one concrete change, saying the party would remove the stress test for people seeking to renew their mortgages with a new lender. Renewals with a current lender are already exempt.

Mortgage broker Rob McLister, founder of Ratespy said he believes many borrowers would take advantage of 30-year mortgage amortizations if they could, and would likely use the extra leeway to buy a more expensive home.

Data show that 85 per cent of first-time buyers purchase as much house as they can afford, Mr. McLister said, which means a majority would likely spend more on a house if a longer amortization period reduced their monthly payments.

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