New mortgage rules could depress demand
TORONTO Demand for housing could fall as much as 10 per cent because of tougher qualification rules being considered by the federal government, according to a report by TorontoDominion Bank out Monday.
The report by TD chief economist Beata Caranci and economist Diana Petramala takes aim at a proposal from the Office of the Superintendent of Financial Institutions. The federal banking regulator is looking to crack down on non-insured mortgages — impacting people who put at least 20 per cent down — by making those consumers qualify based on a rate 200 basis points above what is on their contract.
“Government policymakers are not done yet with regulatory changes on the mortgage market,” the pair wrote in their 13-page report, noting income testing is currently used for high-ratio mortgage loans backed by Ottawa. “In the year of implementation, we estimate that this new rule could depress demand by 5% to 10%, and shave 2% to 4% off of our current forecast for the average price level in 2018,” the authors said, as the proposed measures will act as another force that limits price growth in the future.
Those consumers, who often have as little as five per cent down, must qualify based on the posted five-year rate of the Bank of Canada, which is currently 4.84 per cent.
The economists suggest changes to tighten the rules on non-insured mortgages will lead buyers to “come up with a bigger down payment, opt for a lower priced home and scale back other debt,” and may even delay purchases all together.
As part of the report, the economists looked at the “unprecedented” number of policy changes over the past 18 months. Other key changes implemented by Ottawa included increasing the minimum down payment on homes worth more than $500,000 and reducing portfolio insurance, a program that allowed financial institutions to securitize loans they deemed risky, but not legally required to be insured.
“Each successive regulation change at the federal level has left a smaller mark on home buying activity,” the economists wrote, noting the most recent changes from Ottawa during that 18-month period may have only shaved two per cent off of demand.