Tuesday's fiscal update placed a strong focus on housing – and the struggles of mortgage holders
Canada’s housing crisis is squarely in the sights of the federal government, with this week’s fall fiscal update featuring a slew of measures aimed at addressing chronic affordability challenges and lack of supply in the national housing market.
Further proposals were rolled out by federal finance minister Chrystia Freeland in a bid to tackle the mortgage woes and renewal headaches facing scores of Canadians.
But were they enough – and are there any other areas the government might focus on in the months ahead to improve the country’s mortgage and housing outlooks?
Chief among the proposals announced on Tuesday (November 21) was a so-called “mortgage charter” aimed at clarifying how lenders should be interacting with and serving homeowners during the mortgage process.
That move, Freeland told the House of Commons, was designed to “[make] sure Canadians have the support they need to afford their homes when renewing at a time of higher interest rates.”
Measures in the proposed Charter include a requirement for lenders to contact homeowners between four and six months ahead of their mortgage renewal to notify them of their options – which must include the choice of making lump sump payments to avoid negative amortization, or offering temporary amortization period extensions with no fees attached.
Nonetheless, the proposal has been criticized by members of Canada’s mortgage industry including broker Ron Butler, who described it in a LinkedIn post as a “nothingburger” whose central recommendations had already been implemented.
Under the Charter, the government said Canadians could expect “not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal.”
However, mortgage industry government relations advisor JP Boutros noted on LinkedIn that financial services regulator OSFI (Office of the Superintendent of Financial Institutions) had already indicated to the Canadian Mortgage Brokers Association (CMBA) in October that insured borrowers were exempt from that stress test – meaning that proposal tabled on Tuesday was nothing new.
Where else should the government focus its attention in the mortgage space?
The fiscal update emphasized the government’s determination to tackle fraud and money laundering risks in real estate, indicating that it would extend requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) to title insurers.
Real estate representatives, meanwhile, will be required to identify unrepresented and third parties in real estate transactions.
Elan Weintraub (pictured top), co-founder and director with the Toronto-based Mortgage Outlet, told Canadian Mortgage Professional that with mortgage fraud having emerged as an ever-growing concern in 2023, allowing income verification through the Canada Revenue Agency (CRA) would be an obvious way of safeguarding borrowers and clients.
That could involve checking a borrower’s stated income by inputting the exact figure into a tool linked to CRA, Weintraub said, and receiving a rapid response on whether the amount was correct or unverifiable.
“You’re not asking for personal information and you’re not saying, ‘What is the number?’” he said. “You’re saying, ‘This is the number that I have. Is this document authentic?’ To me, that is a pretty obvious way to put a significant pin in the fraud bubble.”
Any measures to help Canadians with their upcoming renewals are to be welcomed, Weintraub said – particularly given the gravity of the situation facing many borrowers in the months and years ahead.
“It’s not like your Starbucks order going up from $5 to $7. It’s your biggest expense in life and your mortgage payment goes from $3,000 to $5,000. People don’t have an extra $24,000 a year in after-tax dollars,” he said. “I really think [the government] need to get ahead of that.”
The Canadian federal government plans to allocate approximately $20.8 billion over six years to incentivize the development of housing supply and address affordability challenges.— Canadian Mortgage Professional Magazine (@CMPmagazine) November 22, 2023
Read more: https://t.co/D9lgDIdqgl#mortgageindustry #housingmarket #housingsupply #affordability
Supply challenges remain significant hurdle in housing market
The scale of the task facing the government appears to be a daunting one, particularly with little indication of an immediate uptick in the pace of homebuilding or inventory entering the housing market and hundreds of thousands of new Canadians expected to arrive in the coming years.
Connecting housing and immigration policy more closely, Weintraub said, would be a wise move on the government’s part.
“I think they need to focus on integrating immigration with housing policy. It seems like those were operated in silos,” he said. “And obviously if you’re letting in 500,000 people a year, where are they going to live? It’s a pretty basic question.”
Tuesday’s update said housing construction across Canada was being boosted by federal investments, with Toronto and Vancouver witnessing record housing starts this year, as Ottawa pumped $9 billion more into housing than in 2013-14.
The feds also announced a “crackdown” on non-compliant short-term rentals, particularly in Montreal, Toronto, and Vancouver, in this week’s fiscal update.
The government said it would deny income tax deductions for expenses linked to short-term rental income – such as interest expenses in regions that have banned those rental types – and when short-term rental operators don’t comply with applicable licensing, permitting or registration requirements.
“Obviously that’s a very big policy change. To a certain extent, I think that could help, but I also think that frankly as a property owner, to have the government regulate everything about your property is not a great situation either,” Weintraub said.
“So maybe they could have made an allowance for existing Airbnbs – but I think that will have an impact on the market and loosen up some supply.”