Banks Warn of Growing Energy-Related Risks in Mortgage Portfolios
Across Europe, banks are trying to figure out how to handle a growing risk lurking in residential mortgage portfolios: energy consumption.
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Across Europe, banks are trying to figure out how to handle a growing risk lurking in residential mortgage portfolios: energy consumption.
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Feb 5, 2019
Bloomberg News
,Federal officials should revisit lending rules that were introduced last year, as the housing market rapidly cools and first-time buyers find it increasingly difficult to buy a home, industry groups say.
Paul Taylor, chief executive officer of Mortgage Professionals Canada, said the country’s banking regulator should ease up on stress tests that require homebuyers to prove they can handle payments at 200 basis points above the contracted rate. He’s also urging the government to extend amortization periods back to 30 years for first-time buyers.
“If we continue to force those folks to rent, they’re going to see continuing escalating costs and the average Canadian is going to be a whole lot worse off in a decade,” Taylor said in an interview at Bloomberg’s Toronto office. His group’s 11,500 brokerages, lenders, and insurers originate more than 35 per cent of all mortgages in Canada and 55 percent for first-time buyers, according to its website.
Taylor is urging the Office of the Superintendent of Financial Institutions, the country’s banking regulator, to adjust the rate for stress tests to 75 basis points.
A string of government rule changes over the past several years is generating a widening backlash as Canada’s housing market continues to soften. Toronto and Vancouver, the country’s two most-expensive markets, are coming off their worst year for sales in at least a decade.
UNINTENDED CONSEQUENCES
Since mid-2017, the Bank of Canada has lifted its key lending rate five times, to 1.75 per cent. David Wilkes, chief executive officer at the Building Industry and Land Development Association, says the stress test needs to be changed to reflect those higher borrowing costs.
Wilkes also says one of the unintended consequences of the rule changes is that they’re driving home buyers into secondary markets where rates are often much higher. “Without those changes, we are going to continue to see a dampening of demand,” Wilkes said in a telephone interview.
The federal government has the opportunity in its upcoming budget to make changes, such as extending amortization periods, Wilkes said. It could also use “moral suasion” to encourage lenders to look at longer mortgage terms, so rather than the standard 5-year term, they could offer 7-year or 10-year terms, similar to what’s available in other markets, Wilkes said.
Finance Minister Bill Morneau, who’s preparing his budget ahead of an election in October, said this month the government is looking at ways to make homes more affordable for younger buyers. Carolyn Rogers, Osfi deputy superintendent, is due to speak Tuesday in Toronto about the stress tests.
“I’m hopeful that there’ll be some sort of a reduction to the stress test," Taylor said. "But I’m also nervous that they will create some sort of overly complex tax rebate system specifically for first time buyers that won’t assist them at all.”