Our House

DOMINION LENDING CENTRES OUR HOUSE WINTER 2018 11 Our House magazine, adding that when someone's largest asset loses value, they tend to spend less. "When house prices come down, you can potentially create a recessionary environment in pockets across the country." How we got here For the government to poke around the mortgage industry is nothing new. In October 2016, Ottawa introduced a number of changes including a stress test that meant all new or insured mortgages needed to qualify at the greater of either the Bank of Canada posted rate for mortgages or the contract rate plus two percentage points. It caught the mortgage industry o‚ guard. In the months that followed, it also galvanized organizations like MPC to lobby politicians and bureaucrats in Ottawa on behalf of the industry. Now, MPC is calling on the federal government to reduce the new stress test to three quarters of a percentage point. If someone is locked into a five-year term, their equity and income will likely increase during that time, Taylor explains, but the proposal also meets OSFI's intent to encourage a more risk-averse lending environment. Our House reached out to o‹cials with OSFI for this story, but no one was available to comment. Instead, the regulator provided background on the proposed rule changes. In an email, a spokesperson for OSFI explained that the regulator's job is to "prepare federally regulated financial institutions to navigate a number of severe but plausible scenarios, while continuing to provide financial services to Canadians and maintaining the confidence of the public." "As residential mortgage lending represents a material portion of activities at many federally regulated financial institutions we regulate, it is important that lending practices in this area be governed prudently and with appropriate risk controls," the backgrounder continues. "Predicting how housing and economic environments will develop is challenging, but OSFI recognizes the potential risks caused by high household indebtedness across Canada, and by high real estate prices in some markets. OSFI reviews its guidance on an ongoing basis to ensure it is aligned with industry practices and the evolving financial services environment. We are not waiting to see those risks crystallize. Rather, we are being proactive and adapt our standards to the evolving housing markets and economic environment." A spike in sales On the ground, mortgage brokers have been dealing with an influx of questions from consumers and rushed transactions leading up to the rule changes. Len Lane is an Edmonton-based mortgage specialist with Dominion Lending Centres. The entire fall he saw a big uptake in deals from homebuyers trying to beat the January deadline. He's also been trying his best to educate his clients that what they can buy and what they can use as equity from their home will drop by 20 per cent. "A 20-per-cent reduction in what they can buy is going to make a big change in a lot of markets, especially markets that don't have a lot of mid- range housing," he said, specifically pointing to markets in Vancouver and Toronto. After more than a dozen years in the mortgage business, Lane wasn't really caught o‚ guard by the rule changes, noting that regulatory volatility is all part of being in the industry. However, he's not convinced these rule changes are the right approach. "You now have no say in the equity you built up in your own house," Lane says. Those feeling battered by all the new obstacles can take heart, though. The head of MPC doesn't expect any further changes until after the next federal election in 2019. "I'd like to think they're [the government] done," Taylor says. "I don't have a crystal ball, but my suspicion is you won't see much else." ISTOCK For the average consumer, all these changes to mortgage rules can get a little confusing. Here are some answers to a few common questions. Do I still have the option to refinance my home? Yes, homebuyers will still have the ability to refinance up to 80 per cent of the value of their property. You will have to pass the same stress test, which is the higher of the Bank of Canada Rate (currently 4.99 per cent) or the rate from the lender plus two per cent. What if I don't qualify at best-rate lenders? The qualifying stress-test rule will also apply to alternative lenders (also know as B lenders) that are governed by OSFI. Any federally regulated lender will have to adhere to the stress test. This includes all mortgage lenders in Canada except private lenders and credit unions. To counter this much higher qualifying rate, these alternative lenders will have the discretion to revisit their own income-to-debt-ratio (TDS) calculation policies. For example, at present these alternative lenders have the ability to approve mortgages with a 50-per-cent TDS (banks average 42 per cent). Under the new stress-test rules, alternative lenders will most likely have to increase their TDS policy to a higher figure to o"set the higher qualifying mortgage payment under the stress-test rate calculation. Just the FAQ s

• Cover