News and Education
Better Rates! Better Service!
By Tara Perkins
Published on Monday, Mar. 11 2013
Mortgage brokers are pressing the federal government to make it easier for young people to buy their first homes, just as the spring sales season descends and Ottawa prepares its next budget.
Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals, recently met with finance department officials in a bid to convince them that their efforts to cool the housing market have gone too far, especially when it comes to the impact on first-time buyers.
“March, April and May are the most important months for both new sales and re-sales,” said Mr. Murphy. “And the market is slowing.”
The government has deliberately taken measures to cool the growth of house prices and mortgage debt levels four times since the financial crisis, amid fears that it was heating up too quickly.
The most recent measures, which took effect in July, included chopping the maximum length of insured mortgages to 25 years from 30. All other things being equal, a shorter mortgage means higher monthly payments for the borrower.
Mr. Murphy and a number of other industry players say this rule change, coupled with stiffer lending guidelines that regulators have imposed on the banks, have made it too difficult for young people to enter the housing market at a time when prices remain high. While sales have dropped significantly in the wake of the July rule changes, prices have yet to follow suit.
Now Mr. Murphy is asking the government to resume its backing for insurance on 30-year mortgages, as long as the buyer can prove they could qualify for a 25-year mortgage. He is also pushing for an increase to the $750 tax break that first-time buyers receive.
The Finance Department declined to comment, but it is unlikely that Ottawa will take any such steps right now. Finance Minister Jim Flaherty signalled this year that he was pleased with the impact his changes have had so far, and wouldn’t mind seeing house prices come down.
And he took Bank of Montreal to task last week for its decision to cut the advertised price of its five-year fixed-rate mortgages from 3.09 per cent to 2.99 per cent (lower rates are available in the market, but that was the lowest posted five-year fixed rate among the largest banks), indicating that he continues to be worried about consumers racking up too much mortgage debt and inflating house prices.
Indeed, he went so far Friday as to pat other banks on the back for not following suit by dropping their posted five-year rates to such levels (customers can negotiate with banks and obtain discounts from the posted or advertised rates).
Some economists, such as Canadian Imperial Bank of Commerce’s Benjamin Tal, are cautioning that the housing market could rebound more quickly and to a greater degree than expected this spring after months of slumping sales. And the point at which consumer debt levels are likely to become a real issue for the economy is when interest rates finally begin to rise.
Phil Soper, the chief executive of real estate agency Royal LePage, supported Mr. Flaherty’s three earlier interventions in the market, agreeing it had become overheated, but thought the changes in July went too far and made it unnecessarily difficult for first-time buyers.
However, he suggested that, eight months on, the damage has been done, and so he is not pressing Mr. Flaherty to create new incentives for first-time buyers right now. The government might as well save those for when interest rates rise, he suggested.
“There is not an overwhelming cause from a public policy standpoint to provide further assistance to young people who want to own their own homes,” Mr. Soper said. “I think that might come, and we might be talking about that in a couple of years as it becomes more difficult for them.”