Tough Mortgage Rules Affecting Home Builders and Young Home Buying Market

Home builders are displaying growing concerns over Canada’s cooling housing markets, as they plead with the federal government to ease up mortgage-lending restrictions and mortgage rules.

The rigid mandates have helped garner the preferred soft landing and mortgage rates have risen sufficiently enough for the mortgage rules to subside—at least according to executives at Mattamy Homes Ltd., the largest closely held home builder in North America.

As of January, the newest set of rules dictate that applicants must prove the ability to successfully make payments at 2% above the contracted rate—even with a 20% down payment and without needing mortgage insurance. These B-20 stress test has previously only existed for insured mortgages.

As a result, home prices in Toronto had dropped a significantly in average by 12% by April when compared to the same month of last year. However, it’s since levelled off.

The B-20 tests continue to be a sticking point for Mattamy Home Canada. In an interview at Bloomberg’s Toronto office, CEO of the preeminent home builder Brad Carr was emphatic about Mattamy’s lobbying for a B-20 pullback. The goal has been accomplished, so holding on any further is over-the-top.

Carr believes that the occurrence of rising rates means that nature will take its course with the 2% spread and hopes that the government will put a cap on the rules. A reduction of 1.5% or 1% would suffice, according to Peter Gilgan, the founder of Mattamy Homes.

The director of communications at the CBHA, David Foster is also pushing for a repealing of the stress test, explaining that markets such as Calgary are already soft and feeling the brunt of the tough rules.

Younger, first-time buyers are badly hampered by the restrictions and the generation will only grow more frustrated and less conducive to a productive climate if the rules aren’t lightened. People, when flummoxed by these stress tests turn to open variable rate mortgages or the non-regulated space. Both come with a lot of risk to the borrower.

Will young homebuyers be able to overcome these difficult circumstances?