Scheer’s 30-year amortization promise “necessary correction to an overreaction”: mortgage expert

At a campaign stop just north of Toronto on Monday, Scheer said a Conservative government would raise amortization periods set by the previous Harper government, from 25 to 30 years, and “review (the stress test) to ensure it isn’t a barrier.”

The late Jim Flaherty, Harper’s former finance minister, began lowering the original 40-year amortization period in 2008 and continued in five-year increments to 25 years in 2012, to cool an overheated real estate market and reign in household debt.

Current rules require homebuyers with less than 20 percent downpayment to undergo a mortgage stress test, based on Bank of Canada’s five-year benchmark rate or the customer’s current rate plus two-percent.

Scheer’s easement on mortgage amortizations would replace the Liberal’s first-time homebuyer’s incentive, in which Canadian Mortgage and Housing Corporation gives an interest-free loan for up to 10 percent of the home’s value (new builds;) five percent for existing residences.

The Liberals have since sweetened their first-time buyers’ incentive deal, or increased the amount of debt new homeowners can carry under the scheme, by promising to raise the cap on purchase prices from $500,000 to nearly $800,000.

“So many Canadians won’t be eligible for it,” Scheer claimed of Liberals’ CMHC-mortgage backstop, citing markets like Toronto and Vancouver where the value of most family homes exceeds the cap.

“It won’t have a real impact on the ability for young couples to get into the housing market. And at the end of the day the government owns part of your home and benefits from the sale of that down the road,” said Scheer at a press conference inside a new subdivision development in Vaughan, Ontario.

Conversely, by allowing longer amortization rates, Scheer and the Conservatives are setting the table for people to take on bigger mortgages and higher personal debt, while at the same time potentially loosening stress test rules on first time buyers.

Professor Ian Lee of Carleton University’s Sprott School of Business – a former mortgage manager with Bank of Montreal – says the 30-year amortization rate proposal is a “necessary correction to an overreaction.”

“If Scheer had proposed 40-year amortization I would’ve been extremely critical, but 30 years is not wildly excessive,” Lee told The Post Millennial.

“Housing prices have gone up much higher than otherwise, because government policy at the provincial level – specifically Ontario and B.C. – have very deliberately restricted the supply of serviceable land and new properties coming on relative to demand.”

Scheer’s promise to avail surplus federal real estate for housing development could marginally address supply shortages, but Lee doesn’t believe the Conservative leader’s promise “to launch and inquiry into money laundering” will find such activity has wildly distorted the market.

“I’m not condoning illegalities, but do I believe that this is a significant part of the problem in Canada today? No I do not,” said Lee.

“If one looks at the magnitude of real estate, the most expensive asset class in Canada…the numbers are so large, there are so many owners and each property worth so much, thatmoney laundering is a fraction of a 1000th of a percent in the total industry.”