TD says impact of rules have been longer-lasting and more significant than originally intended and government should consider flexibility
The Canadian government should consider being flexible on its new mortgage lending rules because the impact has been longer-lasting and more significant than originally intended, Toronto-Dominion Bank says.
Home sales were about 40,000 lower between the final quarter of 2017 and the same period a year later than they otherwise would have been without the rules, according to a note to clients Tuesday by TD economists Rishi Sondhi, Ksenia Bushmeneva and Derek Burleton. That translates into about a 7 per cent decline in sales, they said.
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There is also evidence of a shift in business to private lenders who are not subject to the rules, known as B-20 and implemented by Canada’s banking regulator. The economists estimate the share of borrowers in Toronto accessing funds from alternative lenders increased to 8.7 per cent in the second quarter 2018, from 5.9 per cent in the same quarter a year earlier.
The changes mean federally regulated lenders must now run a 200 basis-point stress test on new mortgages, to ensure the quality of lending remains high amid escalating home prices. The measures are disproportionately affecting first-time homebuyers, who normally account for between 40 per cent and 50 per cent of the market, as well as cities that have more youthful demographics like Toronto and Vancouver, TD said.