Time to relax mortgage regulations, say Canada home builders

Canada’s home builders are urging the federal government to loosen mortgage-lending restrictions that have helped cool housing markets this year.

Executives at Mattamy Homes, North America’s largest closely held home builder, said the rules have brought about the desired soft landing and are not needed as much now that interest rates are rising. The Canadian Home Builders’ Association said the rules are hitting millennials and struggling markets like Calgary particularly hard.

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The rules, put in place in January, require even those with a 20 per cent down payment, who do not need mortgage insurance, to prove that they can make payments at 2 percentage points above the contracted rate. The so-called B-20 stress tests already existed for insured mortgages. By April, the average home price in Toronto had tumbled 12 per cent from the same month the prior year, although it has since stabilised.

“We’re going to continue to lobby for a pullback now on B-20,” Brad Carr, chief executive of Mattamy Homes Canada, said in an interview. “That had a very targeted outcome. It’s been achieved so its kind of overkill now.”

As rates rise “they’re doing their natural job and that 2 per cent spread, we certainly hope the government will either remove it or at least cap it,” Carr said. Peter Gilgan, founder and CEO of Toronto-based Mattamy Homes, said a reduction to 1.5 per cent or 1 per cent would make sense.

“Ideally at this point the best thing would be for the new stress test to be repealed, just removed,” David Foster, director of communications at the CHBA said. “Markets like Calgary, they’re already quite soft, are just hammered by this.”

Foster said the restrictions are disproportionately affecting young first-time buyers and the longer the rules are in place the more disenfranchised that age cohort is going to be. The stress tests also perversely tend to push people into open variable rate mortgages or the non-regulated space, neither of which are without significant risk to the borrower, he said.

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“Given the risks and vulnerabilities in the current environment, sound mortgage underwriting, that includes a rigorous assessment of a borrower’s capacity to repay their loan, is more important than ever,” Annik Faucher, a spokeswoman for the federally regulated Office of the Superintendent of Financial Institutions, said by email.