Mortgage ‘stress test’ is hurting more than helping

B-20 Mortgage Stress Test was introduced in January 2018, another classic example of the government trying to influence the free market unnecessarily. To understand, one must first know what the objectives were:

1) Protect borrowers from overextending themselves.

The average Canadian homebuyers don’t need protection; residential mortgages are not the problem. Home equity lines of credit and credit cards with highinterest rates are the problem. Why isn’t the government addressing the real issue?

2) Ensure responsible mortgage lending and underwriting standards.

These lending guidelines exist today and have worked successfully for decades; no changes necessary.

3) Decrease the risk of mortgage defaults.

The “stress test” is doing exactly the opposite, by forcing homeowners to qualify at interest rates that are 1.5 to two per cent higher than current rates. An example is a young family that owns a home, both were working, then one loses their job. They then receive their mortgage renewal offer from their bank/lender, some of whom are sending renewal notices out at their “posted rates” which are always higher than currently available rates. But now, because the couple must qualify at interest rates between 4.5-6 per cent, they can’t; they can afford current rates which are approximately three per cent. By forcing them to qualify at the higher rate they are forced to renew with their lender because they can’t “shop” their mortgage. Government is not addressing this serious issue! As a result, there will be many more Canadians losing their homes, in effect doing exactly the opposite of the intent of the “stress test”!

4) To avoid an economically debilitating housing crash, similar to what the U.S. experienced in 2008.

It’s nearly impossible because of the lending guidelines that already exist; many U.S. homeowners borrowed 100 per cent of the purchase price or more. Interest costs in the U.S. are tax deductible, so they borrowed enough to buy that new house and a new Cadillac because it’s all tax deductible. The crash was inevitable, fuelled by greedy and unscrupulous lenders.

If there was also a hidden agenda to influence real estate markets in Vancouver and Toronto, it’s criminal to subject the rest of the Canadian citizens in an attempt to “fix” these markets.

The “stress test” is doing real damage and hurting average Canadians. It must be eliminated. Instead, the government is throwing fuel on the fire by introducing incentives to homebuyers. Incentives and inducements do not work long term, the free market system does.

Make some noise; let your voices be heard!Miles Godlonton

Broker/Owner Lethbridge Real Estate.com