In spite of the stress test hurting buyers' purchasing power, they are still in favour of the measure—and they still need brokers to walk them through the details
Affordability was key for homebuyers in 2019, according to the annual Mortgage Consumer Survey released Friday by Canada Mortgage and Housing Corporation (CMHC).
Despite this, homebuyers were big fans of the stress test that took effect in January 2018. The CMHC survey found that 65% of buyers believe the mortgage qualification stress test will prevent more Canadians from taking on a mortgage they can’t afford in the future.
They clearly aren’t on the same page as industry professionals who have been very vocal about their dissatisfaction with the stress test, and the fact that it’s unnecessarily hurting first-time buyers.
Taylor Little, CEO of Neighbourhood Holdings, said that “the stress test was rolled out at a time where we thought we were going to be in a rising rate environment and that, certainly in the short term, has gone away.”
Because of this, he said, the qualifying standards could benefit from refinement. It would be a risky political move to roll back the stress test but taking factors such as location into effect could be worth further consideration.
“There’s no doubt I think the stress test was a bit blunt when it was rolled out . . . [but] CMHC in particular would say that their stress test has been a success; it’s cooled Vancouver and Toronto markets.”
The number of homebuyers who are aware of the qualifying changes have risen from the 2018 Mortgage Consumer Survey, to 59% from 52%. The vast majority also said that the new rules made no impact on their decision to buy a home.
Interest rates may have had more of a significant impact on homebuyers’ purchase decisions. In 2018, 32% of homebuyers obtained an interest rate between 2.5%-2.99%, while 43% of homebuyers got an interest rate between 3%-3.49%. But nearly a third of respondents said that they don’t expect interest rates to rise next year, which is a big jump from 20% of homebuyers who said the same in 2018. As low rates persist, so does buyer demand.
Whether consumers go with a broker or a lender, they’re generally pretty satisfied with the experience. There are some differences behind their choices, however. Eighty percent of buyers chose to go with a lender because of the rate they were offered and the level of service they received. When it came to choosing a mortgage broker, though, the main reasons behind consumers’ choice was not only rate (61% of buyers), but also to save time (52%), and because of the advice (50%) they received.
When it comes to retention, the CMHC survey also revealed an important opportunity for brokers. Consumers may be generally satisfied with their mortgage experience, but lender loyalty is just over 50%. Many buyers are happy to go with the mortgage provider that gives them the best deal, and only about a third of all the homebuyers surveyed were contacted by their mortgage lender after their transaction was completed. Brokers are much better with the follow up; almost half of the buyers said their brokers followed up with them after they bought their home.
More than three quarters of buyers said their mortgage broker gave them advice on rates and terms, and 75% said they were offered advice on choosing a mortgage they could afford, meaning that brokers are clearly considered true advisors during the homebuying process. While 73% of buyers thought it was important to have a face-to-face interaction with their mortgage professionals, half would feel comfortable using more technology to arrange their next mortgage transaction. That being said, consumers still think they benefit from personal advice. Even though they’re more comfortable with technology, there has been a “significant decrease” in the comfort level of managing the entire homebuying process and mortgage transaction without having to meet with a mortgage professional (38% in 2019 compared to 45% in 2018).
If brokers can continue to engage with their current clients and make the extra effort to reach borrowers that other lenders let fall through the cracks, there’s a big opportunity to gain market share in the months and years ahead.