Andrew Scheer promises to review mortgage 'stress test,' allow for longer mortgages

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 are vowing to work with OFSI to 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 Monday during a campaign stop in Vaughan, Ont. about 40 kms north of Toronto.

CIBC published a report earlier this year calling for a review of the stress test. 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.

But Ben Rabidoux, president of the market research firm North Cove Advisors, said getting OSFI to change course is out of the government's hands.

"There's some concern any time a politician talks about leaning on an arm's-length financial regulator, because they are supposed to be independent," he said.

"I think that there's a valid criticism around that one piece of the stress test, this idea that it creates these captive borrowers. But to the extent that the promise is, 'We're going to really lean on OSFI,' I just think that's a bad precedent and a really bad look."

Amortization changes

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."

Former prime minister Stephen Harper initially raised the CMHC's mortgage amortization period to 40 years in 2006, before shortening it to 35 years in 2008, reducing it again to 30 years in 2011 and returning it to 25 years again in 2012. 

Former finance minister Jim Flaherty said at the time that he was making the change in an effort to encourage Canadians to borrow responsibly. 

'There is no silver bullet here'

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."

Rabidoux said the Conservatives' plan has some good ideas but it's not clear if it would change the housing scene in Canada.

"There's no silver bullet here. But I mean, this is kind of what you'd expect a politician to say. They don't really move the needle," he said.

James Laird the President of CanWise Financial, a mortgage broker, welcomed the changes, saying that changing the mortgage to a 30-year amortization will allow Canadians to pay 10 per cent more for a house without their mortgage payments increasing. 

Laird also applauded the move to scrap the stress test from mortgage renewals, saying "There was no logic to the existing lender not having a stress test and the new lender having a stress test." 

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.

"Andrew Scheer's only plan is a reckless recipe to increase the debt of Canadian households — and to hurt families by taking money out of their pockets and cancelling the Liberal First-Time Home Buyer Incentive," said Eglinton-Lawrence Liberal candidate Marco Mendicino in a statement.