New report examines impact of mortgage stress tests

The federal government is getting more heat about its mortgage stress test, this time from Mortgage Professionals Canada (MPC), the national mortgage industry association representing mortgage brokers, lenders, insurers and industry service providers.

A report from MPC Chief Economist Will Dunning released in May 2019 outlines in detail how stress tests have contributed to a decline in housing activity in Canada, including the construction of lowrise homes, which are now in the process of a downturn.

“Each housing start that is lost has an economic impact that is 10 times greater than for each lost resale transaction,” says Dunning. “The adjustments for new construction occur quite gradually. The economic impacts have barely begun, will develop slowly, and won’t be fully experienced until the second half of 2021.”

MPC said in a news release that the report is a plea to the federal government to start considering changes quickly to avoid the consequences.

“For some time, our association and others have emphasized that the major defect within the stress tests is that they fail to consider the income growth that will be experienced by the mortgage borrowers,” says Paul Taylor, president and CEO of MPC. “At two percentage points above the actual contracted rates, the stress tests on insured and uninsured mortgages are causing serious and undue negative impacts to the Canadian economy and to the housing market. We advocate for prudent amendments to the current framework. This includes a stress test of 0.75 percentage points to account for higher income and reduced mortgage principal.”

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