More Mortgage Rule Changes On The Way? Oct10/2017

Due to the increase in Canadian household debt and rises in the Toronto housing market, the Bank of Canada has identified some major risks that may affect the financial system of our economy. However, in despite of this they seem to be confident that economic conditions will improve, nationally. They have hinted that they might increase interest rates in the near future.nnmm If interest rates increase, it will most definitely impact the federal interventions in the mortgage market tremendously. Late last year there were other changes that had a positive impact on the debt-to-income ratios for insured mortgage. However, these changes also contributed to rising market share for new, uninsured mortgages. It was an unforeseen and unintended impact, but the Bank of Canada is now looking at uninsured mortgages more closely to see what action may be required. The Ministry of Finance and the CMHC, will likely stand behind the bank in support of these growing concerns. The higher than normal and ongoing increases in debt-to-income ratios for uninsured mortgage may also warrant an investigation, to see what additional regulations may be required. Home Equity Lines of Credit (HELOCs) could also be contributing to increasing household debts, since they have increased at rates above income growth since early 2016. They’ve also accounted for approximately 10 percent of total outstanding household credit. There are other concerns circulating that HELOCs may be putting some Canadians at risk of over borrowing. The Department of Finance may also be considering whether or not to extend the stress test for insured mortgages, to uninsured mortgages too. Essentially, this will create an even playing field for lenders who generate a larger portion of insured mortgage, helping to cool the markets in Toronto and the GTA. However, it could also negatively impact the rest of the Canadian housing market in other places outside of the GTA, that are not currently suffering from the same vulnerabilities. It could become unnecessary if interest rates are raised by the Bank of Canada. Although The Bank of Canada recognizes the negative impacts that the recent changes have had on mortgage lenders that rely on portfolio insurance and that the increased growth in uninsured mortgages have created an opportunity for private residential mortgage-backed securities they feel that “properly structured private securitization would benefit the financial system by helping lenders fund loans.” It’s quite surprising that this issue in particular hasn’t got more attention due to the Bank of Canada endorsing a shift away from CMHC-backed mortgage securities to a private sector mortgage securitization market. It is our hope that the federal government changes their focus to unsecured household debt and moves away from further restrictions on secured debt. Keep your eyes out for changes to HELOCs, B-20 changes and the stress test being applied to uninsured mortgages.
The Benefits of the HBP

The HBP makes home ownership more affordable. Money withdrawn through the HBP essentially serves as a repayable, zero-interest self-loan. This can reduce or eliminate the need for costly mortgage insurance and reduce the amount of interest paid to lenders.

The HBP’s - withdrawal limit is set at $25,000. Unfortunately, inflation erodes the plan’s buying power, thus reducing the ability of Canadians to afford their first home. This wouldn’t be an issue, however, if the HBP were indexed to the Consumer Price Index (CPI).

CREA would like the federal government to index the HBP to the Consumer Price Index (CPI) in $2,500 increments. This will ensure that first-time homebuyers never lose their purchasing power. There’s no cost to the government until 2016, at which point the cost would be minimal.

1. Economic Spinoffs According to Altus Group, each MLS® home sale or purchase generates an average of $52,043 in ancillary spending. This includes renovations, furniture and appliances, professional services, moving costs, and tax revenue to government. In 2015, HBP purchases are expected to result in over $2.9 billion in spin-off spending and more than 22,000 jobs. 2. Follows Established Practice A number of other government programs are indexed to ensure they do not lose their intended value, including retirement benefits, Registered Retirement Savings Plans, and Tax Free Savings Accounts. Tax Free Savings Accounts are indexed to the Consumer Price Index and rounded to the nearest $500. The HBP should be indexed in a similar way. 3. Zero Cost Until 2016 Indexing the HBP is an affordable way for the government to support first-time homebuyers. Using Budget 2009 as a starting point, the plan would adjust by $2,500 in 2016 at a cost of $7.5 million. A further $2,500 adjustment would not occur until 2020 at a cost of $7.5 million.