Although Canadians have begun bracing themselves for possibly higher household expenses once tighter mortgage regulations take effect, an independent equity research firm has warned that consumers might be underestimating the impact of these new rules.
In an interview with BNN, Veritas Investment Research president and CEO Anthony Scilipoti said that the Office of the Superintendent of Financial Institutions’ move to stress test uninsured mortgages, which are scheduled to take effect at the beginning of 2018, might significantly upset economic growth.
“We’ve done a lot of work looking at the impact of B-20 on the mortgage growth and its impact on GDP, and we think it’s going to be significant,” Scilipoti said.
The new tests will compel prospective buyers to provide evidence that they could service payments at either the Bank of Canada five-year benchmark or 2% higher than the posted mortgage rate. In the earlier version of the rules, the tests were only applicable to buyers putting down less than 20% of the purchase price up front.
“This is not something we should just laugh at. We think it’s going to hit [the purchasing power of] all buyers who are putting 20% or more by 25%,” Scilipoti added.
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However, Scilipoti noted that B20 could help institutions like Home Capital Group retain clients, since renewals need not requalify at the higher rate.
“Imagine Home Capital … sends their customer a document saying, ‘Renew now, and we’ll give you this rate,’” he explained. “That individual tries to mortgage shop, realizes they’re not going to be able to get another mortgage, and they’re going to stick with Home Capital.”
Bracing for B20
Core housing need remains stable – CMHC, Statistics Canada