The stress test, which came into effect in January, now requires homebuyers with a 20 per cent down payment to demonstrate that they can withstand an interest rate increase of two percentage points on their mortgage.
Conservative MP Tom Kmiec said the test is making life difficult for anyone refinancing a mortgage and that a stress test of two percentage points is too high. It is particularly cruel, he said, to introduce this policy in a year when nearly 50 per cent of mortgages are being refinanced.
Kmiec, who represents a suburban Calgary riding, said some of his constituents have reported getting fleeced by their bank when refinancing and, in a small number of cases, being forced to sell their home.
Anyone staying with their current lender can avoid the stress test when refinancing but Kmiec said that takes leverage away from consumers and hands it to the banks.
“That causes you not to be able to go out and shop around for the best rate that you can possibly get. That’s where a lot of the angst is coming through. That’s where a lot of people are getting pinched,” said Kmiec.
Kmiec said he would prefer a stress test that used market projections of interest rates, rather than a set number of two percentage points.
Liberal MPs at the finance committee meeting on Wednesday night offered a variety of objections to studying the mortgage regulations, including that members of the committee simply won’t have the time with pre-budget work starting in the fall.
Kmiec said the subcommittee wouldn’t necessarily have to involve current members of the finance committee and offered an amendment to form the subcommittee immediately after the pre-budget work was finished.
The motion was still soundly defeated, with all Liberal MPs voting against it.
“It tells me they’re not taking it seriously,” said Kmiec.
Liberal MP Francesco Sorbara said it was still too early for a subcommittee, considering the measure had only come into effect this year.
“There has not been sufficient data that has been collected yet to see what impact this has had on our housing market,” said Sorbara. “We require a number of quarters still to see the direction of the Canadian housing market.”
Although the new rules may be making life more difficult for some homebuyers, the early signs are that they are having the desired cooling off effect on the housing market and Canadian household debt as a whole.
Statistics Canada reported on Thursday that mortgage borrowing decreased $2 billion to $13.7 billion in the first quarter of 2018, which is the lowest level since 2014. That was accompanied by a 17 per cent decrease in the value of residential resale activity in the first quarter.
Canadians hold about $1.2 trillion in mortgage debt and $628 billion in consumer debt.
Although the housing market appears to be cooling off, particularly in Toronto, the Canada Mortgage and Housing Corporation said there’s nothing to fear about the Ontario market.
“The combination of the level of overvaluation easing in Toronto, growing employment and income rates, new households formed, and only moderate increases in interest rates, has led to a low likelihood of a serious price correction in Ontario, relative to historical bust periods,” the CMHC said on Thursday.
A report from Royal LePage released earlier this year said young homebuyers are the main group affected by the rules.
The report said that purchasing power dropped $40,000 for millennials aged 25 or older as an immediate result of the stress test. The report also illustrated how much of the real estate problem for young buyers is centred in Vancouver and Toronto: for the price of a down payment in one of those two cities, a buyer could afford a detached home in Moncton, N.B.
A study by a subcommittee would allow MPs to voice the concerns of their constituents in a way that private sector and departmental studies couldn’t, Kmiec said.