Why we're upgrading Home Capital to 'buy': Veritas
The head of one of Canada’s largest independent equity research firms is warning Canadians may be underestimating the economic impact of tighter mortgage regulations.
In an interview on BNN, Veritas Investment Research President and CEO Anthony Scilipoti said the impact of the Office of the Superintendent of Financial Institutions’ move to stress test uninsured mortgages, known as B-20, may deliver a significant hit to economic growth.
“We’ve done a lot of work looking at the impact of B-20 on the mortgage growth and its impact on GDP, and we think it’s going to be significant,” he said. “This is not something we should just laugh at. We think it’s going to hit [the purchasing power of] all buyers who are putting 20 per cent or more by 25 per cent.”
The new measures, which will see all borrowers tested on whether they could make payments at a significantly higher rate, will come into effect at the beginning of 2018. Prospective buyers will have to prove they could make payments at either the Bank of Canada five-year benchmark or two per cent higher than the posted mortgage rate.
Previously, the tests were only in place for those putting down less than 20 per cent of the purchase price up front.
Scilipoti said the measures could help lenders like Home Capital Group (HCG.TO) retain customers, as existing borrowers renewing their mortgages would not have to requalify at the higher rate.
“Imagine Home Capital … sends their customer a document saying, ‘Renew now, and we’ll give you this rate,’” Scilipoti said. “That individual tries to mortgage shop, realizes they’re not going to be able to get another mortgage, and they’re going to stick with Home Capital.”