Councillor wants local approach to mortgage rules over national ‘stress test’
A notice of motion being presented this week which asks Ottawa and the province to consider the adoption of a regional approach to lending rules over the current “mortgage stress test” is earning some support among councillors.
The motion, being brought forth by Coun. George Chahal and which is scheduled to go before council at Monday’s meeting, says the existing nationwide mortgage rules make it more difficult for Albertans to buy homes.
The mortgage stress test, which came into effect last year, is meant to ensure homebuyers can still afford their mortgages even if interest rates rise substantially. It aims to reduce the amount of debt homeowners and financial institutions can take on and applies to all Canadian homebuyers — even those who make a down payment of 20 per cent or more.
The federal rule created a minimum qualifying rate, or a “stress test” for mortgages, requiring lenders to enhance their loan-to value limits to be dynamic and responsive to risk.
It “was created to deal with the unstable real estate markets in Vancouver and Toronto where red flags have been raised in recent years regarding the combination of unsustainable price appreciation and high-debt ratios,” Chahal’s notice of motion states.
But he pointed to “unintended consequences” outside those cities, including the slowing down of Calgary’s real estate market. There was also a reduction in construction and development which led to fewer jobs, an overall drop in Calgary homeowners’ property valuations, and a lower GDP, the notice of motion states.
“They brought in the stress test because of the fear that price of houses was going to rise extremely well in other markets, as well as making sure that people are able to survive if interest rates went up fairly fast,” said Coun. Shane Keating.
“If you’re attempting to apply a single rule across the board because of a few situations that may not apply across Canada, then certainly we should be able to look at it slightly different in this regard.”
He said the existing rules hurt an already struggling local economy.
“When you’re talking about trying to rebound, every time you have a hurdle placed in front of you for that economy … then it just stays where it is,” Keating said.
Coun. Joe Magliocca said a localized approach could “provide a lot of jobs and get our construction going again.”
“I understand why they do it in Toronto and I understand why they do it in Vancouver because of their economy there, but they should not be equal all throughout Canada,” Magliocca said.
Last week, United Conservative Party leader Jason Kenney said that if his party is elected this spring, he’d call on Ottawa to eliminate the stress test.
Speaking at the Calgary Real Estate Board’s annual forecast event, Kenney called it an “unfair attack on Alberta home ownership” and said if he becomes premier, he will introduce a motion in the legislature calling for the federal government to remove the rules from the Alberta market.
Chahal’s notice of motion requests that Mayor Naheed Nenshi write a letter to the premier, treasury board and federal minister of finance advocating that Alberta credit unions and ATB Financial consider the adoption of Alberta-based mortgage approval requirements.
Coun. Gian-Carlo Carra said the issue “is significantly outside of the city’s bailiwick.”
“But I also think given the crisis we’re dealing with it behooves us to step up and advocate outside of our sphere of influence,” said Carra, calling himself “agnostic” toward the issue.
“I’m interested in the debate and I have a very open mind about this,” he said.
“I certainly think that one of the things that set Canada sort of apart from a lot of the rest of the world during the financial crisis in 2008 was our responsible lending practices. I’m sort of disinterested in dismantling those kinds of controls, but as Coun. Chahal has explained to me, we may be over-regulated in this particular regard.”