Time to Relax Mortgage Regulations, Canada Home Builders Say

(Bloomberg) -- Canada’s home builders are urging the federal government to loosen mortgage-lending restrictions that have helped cool housing markets this year.

Executives at Mattamy Homes Ltd., North America’s largest closely held home builder, said the rules have brought about the desired soft landing and aren’t needed as much now that interest rates are rising. The Canadian Home Builders’ Association said the rules are hitting millennials and struggling markets like Calgary particularly hard.

The rules, put in place in January, require even those with a 20 percent down payment, who don’t need mortgage insurance, to prove that they can make payments at 2 percentage points above the contracted rate. The so-called B-20 stress tests already existed for insured mortgages. By April, the average home price in Toronto had tumbled 12 percent from the same month the prior year, though has since stabilized.

“We’re going to continue to lobby for a pullback now on B-20,” Brad Carr, chief executive officer of Mattamy Homes Canada, said in an interview at Bloomberg’s Toronto office. “That had a very targeted outcome. It’s been achieved so its kind of overkill now.”

As rates rise “they’re doing their natural job and that 2 percent spread, we certainly hope the government will either remove it or at least cap it,” Carr said. Peter Gilgan, founder and CEO of Toronto-based Mattamy Homes, added that a reduction to 1.5 percent or 1 percent would make sense.

“Ideally at this point the best thing would be for the new stress test to be repealed, just removed,” David Foster, director of communications at the CHBA said. “Markets like Calgary, they’re already quite soft, are just hammered by this.”

Foster said the restrictions are disproportionately affecting young first-time buyers and the longer the rules are in place the more disenfranchised that age cohort is going to be. The stress tests also perversely tend to push people into open variable rate mortgages or the non-regulated space, neither of which are without significant risk to the borrower, he said.

“Given the risks and vulnerabilities in the current environment, sound mortgage underwriting, that includes a rigorous assessment of a borrower’s capacity to repay their loan, is more important than ever,” Annik Faucher, a spokeswoman for the federally regulated Office of the Superintendent of Financial Institutions, said by email.

To contact the reporter on this story: Natalie Wong in Toronto at nwong133@bloomberg.net

To contact the editors responsible for this story: Debarati Roy at droy5@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Jacqueline Thorpe

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