Low defaults put lie to stress test need, brokers say

March 5, 2019

Canadian homeowners, especially those living in high-priced cities, have minuscule delinquency rates on mortgages and continue to post excellent credit scores.
The new data comes out as the federal government continues to stress the need for tough mortgage lending regulations including a mortgage stress test that appears—mortgage brokers say—to be hurting those it is supposed to help most.
Nationally, the mortgage delinquency rate is 0.28 per cent, according to a February 26 report from Canada Mortgage and Housing Corp. (CMHC).

In Metro Vancouver—which has Canada’s highest home prices—only 0.1 per cent of outstanding mortgages were delinquent in the third-quarter of 2018, down from 0.11 per cent in the same period a year earlier.
In January 2019, the composite benchmark price for a home in Metro Vancouver remained $1.01 million—the highest in the country. The Greater Toronto Area—with the second-highest prices across Canada—also had delinquencies in the 0.1 per cent range. CMHC reports that 63 per cent of Metro Vancouver homeowners have mortgages of $600,000 or more. This compares with a national average of $208,000.
The CMHC survey, however, also found that Vancouver homeowners with the lowest mortgages had consistently higher delinquency rates—approaching 0.2% for those with mortgages of $200,000 or less.
“This suggests that smaller-sized mortgages are generally held by borrowers with lower incomes and/or less stable employment than borrowers holding larger mortgages,” the CMHC report states.
Mortgage brokers argue these findings confirm the federal government overshot with recent mortgage restrictions, such as the mortgage stress test that requires all new mortgage applicants to qualify at rates 2 per cent higher than what is readily available.
“It is clear that the stress test is overly aggressive and arguably punitive to the very people the government is trying to help – such as first-time homebuyers,” said Peter Kinch, Metro Vancouver-based president of the Vine Group and a mortgage broker with Mortgage Alliance.
According to Equifax, the average credit score for Metro Vancouver mortgage holders is 776, which is considered “excellent.” Similar credit ratings are held by homeowners across the country, according to Equifax.
Sherry Cooper, chief economist with Toronto-based Dominion Lending Centres, noted that the stress test was primarily sold as reducing risk to lenders given concern about a “housing bubble” in Metro Vancouver and Greater Toronto.
“Clearly, there is nothing safer than the Canadian banks’ mortgage book. Canadian mortgage holders are typically very good credits and always have been,” Cooper said.
“There is now a buyers’ market in [Vancouver] and a balanced market in [Greater Toronto]. The tightened stress test qualification rate is no longer necessary,” Cooper stated.