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OREA calls on federal finance committee to relax mortgage rules

On the other hand, Rob McLister of RateSpy.com sees 30-year amortizations as a valuable financial tool as they can allow borrowers to allocate more income to higher-cost debt and less to lower-cost mortgages.
On the other hand, Rob McLister of RateSpy.com sees 30-year amortizations as a valuable financial tool as they can allow borrowers to allocate more income to higher-cost debt and less to lower-cost mortgages.

Ontario realtors' group: ' … only (Ottawa) can address these harsh one-size-fits-all mortgage restrictions that are having a real impact'

The Ontario Real Estate Association on Thursday called on the federal government to relax mortgage-lending laws, arguing against what they see as government-imposed barriers to home ownership.

The group, which represents the interests of 78,000 Ontario realtors, made the arguments in a letter addressed to the chair of the standing committee on finance, Wayne Easter.

OREA’s letter was a response to criticism from Canadian Mortgage and Housing Corporation’s chief executive officer Evan Siddall, who has vocally opposed OREA’s proposals.

Their three major requests are to restore the 30-year amortization period for those who are insured, to make the stress test more “flexible and reasonable” and to eliminate the required stress test for borrowers looking to switch lenders.

The letter, signed by OREA chief executive officer Tim Hudak, also encourages the government to take action to increase housing supply, including by offering unused federal lands and increasing infrastructure incentives.

“The problem is, there are artificial barriers imposed by governments at all levels holding (buyers) back unfairly,” said Hudak. “We can address housing supply at the local, provincial level and nationally, but really only the federal government can address these harsh one-size-fits-all mortgage restrictions that are having a real impact on the struggling middle class.”

Hudak also said that no major parties have offered a plan to address the obstacles to home ownership, hence the letter.

Rob McLister, the founder of mortgage comparison site RateSpy.com, sees the mortgage issues as more nuanced.

He sees 30-year amortizations as a valuable financial tool as they can allow borrowers to allocate more income to higher-cost debt and less to lower-cost mortgages. That minimizes borrowing costs and in theory could help prudent Canadians retire more quickly.

But the problem with longer amortization periods, McLister says, is that they create excess demand and risk by helping more people into the market in the short term.

“Canada can’t afford more purchase demand in its already tight markets, at least until Ottawa implements supply-creation policies that actually work,” he said.

McLister also suggested making the stress tests more adaptable by tying them to an objective reference rate and allowing borrowers who switch lenders to forgo the tests.

OREA’s own research states that 60 per cent of Ontarians support a 30-year amortization period for insured mortgages. Further, 58 per cent of Ontarians aged 18 to 34 support the federal government lowering the minimum-qualifying rate for uninsured mortgages, with 51 per cent of all Ontarians supporting the same.

“Whenever I see bureaucrats being so defensive and somewhat thin-skinned, that would always set off my alarm bells when I was a member of provincial parliament,” said Hudak. “That tells me that the political level needs to take a very close look. Are they still working or is there a better way of addressing the problem?”

This letter comes as the Bank of Canada’s minimum five-year mortgage-qualifying rate has fallen to 5.19 per cent from 5.34 per cent. It is the first change since May 2018 and the first decline since September 2016. The Bank of Canada derives the rate from the posted five-year mortgage rates of the country’s six largest banks.

nsokic@postmedia.com

Copyright Postmedia Network Inc., 2019

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