The federal government's tougher mortgage lending rules and the British Columbia government's affordable housing measures are working against one another. Ultimately, these moves will hurt first time buyers the most.
Canada's banking regulator, the Office of the Superintendent of Financial Institutions says it wants to reduce the risk of mortgage defaults due to high levels of household debt. But applying stricter lending guidelines is making it more difficult for home buyers to access mortgage funds, says Dan Scarrow, vice-president at Macdonald Realty.
Last year, the former Liberal government offered first-time buyers help in covering the cost of a mortgage down payment with an interest free loan of up to $37,500, which is payment free for the first 5 years. The new NDP government says it wants to continue that program for the time being.
These initiatives, on top of government intervention with the 15% foreign buyer tax introduced last year and 2 interest rate hikes this year, are causing major market distortions, such as overheated entry-level home buying and a cooling of the higher priced homes.
Over the past year, MLS stats show that the benchmark price for a single family home in Greater Vancouver rose only 2.9% to $1,617,300 while condo prices soared 21.7% to a benchmark price of $635,800
In the end, all these initiatives are hurting the very people that various levels of government are trying to help.
While Macdonald Realty realizes there is a place for some government intervention in the housing market, it is against the mortgage regulation changes that is sees as unnecessary, especially considering that Canadian Banks have long been recognized globally for managing their business well.
The regulators have arbitrarily insisted that buyers undergo stress testing that artificially limits the amount they can borrow, making it hard for first-time buyers to compete with already wealthy landowners. The banks have always had their own risk assessment and have made the determination that these are acceptable risks and returns that they are willing to take.
Your thoughts? How are the tougher rules going to affect the marketplace for you?