New mortgage rules put in place by the federal government to cool the housing market may be unnecessarily hurting homebuyers who are more responsible than some regulators believe.
North East Mortgages president Terry Kilakos said the rules around stress testing buyers are unnecessary because Canadian home-buyers aren’t over-leveraged and historically don’t go back on their housing debts.
“It’s not something that was needed because we’re responsible,” Kilakos said. “The national default rate is under half a percent. So, seeing as it’s under half a percent, it’s crazy to start putting in these rules to protect us against something that we’ve never done.”
He said the Canadian market has never been like that of the United States, including during the 2008 crisis, where homebuyers found themselves with mortgages worth more than the homes they were buying. In many cases the LTV Loan to Value would be as high as 120 per cent—so when they sold their homes they were still left owing money on a house they no longer owned.
“[In the U.S.] there was a lot more chance for default and a lot more chance for people being in foreclosure,” Kilakos said. “In Canada, maybe it’s because of our culture, maybe it’s because of the way that we don’t over-leverage ourselves. We don’t overstretch and because of that we don’t default on our mortgages.”
For this reason, Kilakos said the stress test and other restrictive mortgage rules are unnecessary given that Canadian banks have been effective as practicing due diligence without government regulation.
Not only has the federal government made it more difficult to buy a home, but it has the additional problem of making it harder for people with lots of credit card debt to consolidate what they owe. Kilakos said it’s now much more difficult for someone to roll their toxic, high-interest credit card debt into their mortgage, which has a much lower interest rate.
“Now, unfortunately, they’re in a situation where they have to pay 18 and 19 per cent on credit card, as opposed to being able to roll it all into a mortgage,” Kilakos said.
With the Canadian Real Estate Association showing declines in home sales nationally and predicting a double-digit decline for 2018 — the most significant decline in five years — expect talk of relaxing the stress test to resurface in early 2019.
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