VANCOUVER (NEWS 1130) — At a time when many renters are struggling to buy a home in Vancouver, mortgage relief is another campaign promise being made ahead of next month’s federal election.
Conservative Leader Andrew Scheer’s proposed housing plan would consider loosening the Liberals’ stress test, and allow buyers to take up to 30 years to pay off their mortgages. The stress test was put into place to make sure buyers could afford their payments if interest rates went up.
A plan to give buyers 30 years to pay off a mortgage might help struggling renters buy a home in #Vancouver's hot market, but the trade off could be higher debt and prices. The latest election promise from @AndrewScheer is getting mixed reviews. More details coming @NEWS1130 pic.twitter.com/x4faTA8DGC
— Marcella Bernardo (@Bernardo1130) September 23, 2019
Tom Davidoff with UBC’s Sauder School of Business cautions that could increase the debt-load for first-time buyers.
“If it’s just you against some Baby Boomer with a lot of home equity, it allows you to compete. On the other hand, everybody you’re bidding against, they can borrow money now too,” he says. “People pay more for homes and have less money for things that aren’t their home as they’re paying off their mortgages.”
He adds the federal government runs the risk of driving prices up because the people benefiting most from Scheer’s plan are sellers.
“You run the risk of an over-heated housing market leading to losses on loans among taxpayers. The stress test was entirely to avoid an over-heating of the housing market and so, this would be a step back. There is certainly a trade-off.”
Camilo Rodriguez, the president of the BC Mortgage Brokers Association, insists many renters would be paying less on housing month-over-month.
“So, if you extend amortization to 30 years, it will drop their mortgage payment, so it will be cheaper for them sometimes to buy versus rent. Based on what we see in the market, that would be a big relief for people because that perhaps lowers their monthly payment and makes things more affordable.”
He admits that may be easier in the suburbs than Vancouver proper, where renters with strong incomes still can’t afford to buy.
“By extending to 30 years, they could access property $50,000 higher in value, which actually gives them the opportunity to buy something.”
Davidoff says markets like Vancouver and Toronto, where it’s hard to add new supply, existing homes are more valuable, so letting would-be buyers borrow more money doesn’t make it cheaper to purchase a house.
He adds there are non-regulated lenders who can make loans not subject to Canada’s existing stress test.
The Conservative Party of Canada’s four-point plan includes using surplus federal real estate to boost housing development.
Scheer is also promising an inquiry aimed at exposing money laundering in the real estate sector.
– With files from the Canadian Press