Finance Committee on Feb. 1st, 2017

[Georges Lambert]

To answer your question about the percentage or proportion of those purchasers who use a down payment of 20% or less, we ran a survey about a year ago for all the Quebec market. We have an estimate of something like 68% of all purchases would be with 20% of a down payment or less. That does not necessarily amount to the use of mortgage insurance, but we're talking about those who answered the survey question, “How much of a down payment did you make?”

[Raj Grewal, Liberal, Brampton East, ON]

Thank you so much, Georges.

My question would be this. That's the key percentage who bought homes with a less than 20% down payment. They were subject to a stress test before our rules were implemented. Is that correct?

[Georges Lambert]

Those statistics, to be more precise, relate to the past five-year period, so I cannot speak to which rules were in effect at what time. You're right; the stress test and other rules were put in, but one of the most popular terms for a mortgage—and our colleagues here will correct me—is the five-year fixed term. Two-thirds of borrowers use a five-year fixed mortgage, so that's the novelty here related to the announcement last October.

[Paul Taylor]

In fact, there's a very key distinction between the current and the previous. The stress test only applied to people who were getting less than a five-year term. Because the logic was that on a five-year fixed mortgage, you have five years to accrue equity before you're actually exposed to the current interest rate again. In today's interest rate environment, even with 5% down, you're almost at 20% by the end of that first five-year term. The new changes, though, require everybody to suffer that stress test as a qualification mechanism.

[Ajay Soni]

We should define that stress test. The stress test for mortgages has always been there. That's the underwriting qualification criteria. It was maybe enhanced, but on this idea that it's something new, it's not new. We've always had criteria for qualification. It was just maybe a little more difficult or stringent. These checks and balances have been in place for quite some time.

[The Vice-Chair, Conservative, Ron Liepert]

Raj, do you have one quick wrap-up question?

[Raj Grewal, Liberal, Brampton East, ON]

Yes. What we heard from testimony is that the government is overreaching, that we're over-regulating, and that the impact is going to slow down the housing market, and it's going to have a negative impact on first-time buyers. Is there any actual research or are you all of the opinion that it's too early to tell?

[Paul Taylor]

It is not too early to tell. Our association has a very large number of mortgage lenders and insurers, actually, as part of our constituents. They will tell us specifically that they have seen reductions in the number of applications for loans they have funded and the number of insurance applications that they have provided cover for. There are some panellists actually arriving at the next session who will probably have much more personal data to be able share with you on these questions.

[Michael Lloyd]

Our numbers are down in the last two months. We've lost probably 30%.

[Raj Grewal, Liberal, Brampton East, ON]

Thirty per cent?

[Michael Lloyd]

Yes.

[Georges Lambert]

Following the 2012 announcement to shorten the amortization period from 30 to 25 years, there was a 21% housing start reduction in Quebec, an 8% decrease in resale. The impact of that shortening had the result of pricing out 39,000 households in Quebec. They were not necessarily looking to buy, but had they wanted to buy, they could not buy a house at an average price then, given the change in the income requirement to purchase at an average price rate.

[The Vice-Chair, Conservative, Ron Liepert]

Has everyone answered your last question?

Okay, quickly.

[Ajay Soni]

You were saying, is the market slowing down? Yes, it's going to slow down but it's going to also.... It's a bit early to say, but it's going to slow down obviously for the first-time buyers, the people who are on the fringes. But there is one compounding effect that we may see coming forward.

A first-time homebuyer, what were they before? They were most likely a renter. We have a limited rental pool in many centres. Now the problem is that if you keep people in the rental pool and you can't get people to qualify as first-time buyers, you're going to have another stress test, in a sense, or a difficulty for people who want to rent. Those rents could possibly go up. Therefore, the overall cost is not just to the home purchaser but to the actual person who is looking to rent. In Vancouver the vacancy rate is very low. If we don't remove people from the rental pool and make them first-time buyers, then we have an issue of housing again on the rental side.

[The Vice-Chair, Conservative, Ron Liepert]

Okay, I'm going to stop you there, sir.

We'll go to Mr. Deltell.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Chair.

Lady and gentlemen, we welcome you to the House of Commons. We are very pleased to see you all.

But I can't say that I'm very proud of what we heard a few minutes ago. It's totally unacceptable and unbelievable that this government took such an important decision without consulting any one of you, and you're not the first. We have heard some other witnesses before who said exactly the same thing. This is totally unacceptable, but at least, thanks to this committee, you can express yourself now.

My question is of course for Mr. Lambert and Mr. Vincent.

Welcome and thank you very much for being here today.

You made some points that truly surprised me. You said you are expecting real estate sales to drop by 7% and that 40% of your clients are first-time buyers. That places a great deal of pressure on the government as regards the policy it abruptly announced. I say “abruptly” since there was no prior consultation.

On the other hand, though, you did offer some potential solutions.

You spoke for instance of an intergenerational RRSP that would allow parents to help their children. At the risk of dating myself, I am very proud to have two children in their twenties who are starting out in life; using my RRSP as leverage, I am able to help them with their first purchase. Your idea of an intergenerational RRSP is very promising.

You also talked about helping first-time buyers by increasing their GST rebate and offering tax credits.

I have another question. I have to leave for another appointment shortly and will give the floor to my friend Mr. Albas. Please do not take my departure personally.

I would like you to explain your four proposals in greater detail. You had the time to explain the intergenerational RRSP, but have you costed out the three other measures? What is your estimate of the cost of the assistance that could be provided to first-time buyers if we follow through on your recommendations?

[Georges Lambert]

There are three other possibilities. Basically, the GST can already be refunded in the case of new housing. That refund is connected to the price of the home, the value of which may reach $350,000 before taxes.

That refund was introduced when the GST was brought in, in order to neutralize the effect of that tax on home purchases—that is always a large purchase—and to facilitate access to some degree. The price criteria are the same. Our proposal is to make that refund more generous for first-time buyers.

In Quebec, where new homes are concerned, the number of housing starts was approximately 38,000. Of that number, 40% were purchased by first-time buyers. That represents about $15,000. That amount could be increased by a few thousand dollars, but this still has to be quantified. We have not presented the details nor the possible impacts, because we want to give the government, that is to say the Department of Finance and its public servants, all possible leeway to determine the parameters.

Our objective is to see a more generous incentive to facilitate the downpayment at purchase. So that is what we have to say about the GST refund.

[François Vincent]

As for the tax credit, it's quite simple: the maximum amount is $750. The purchase of a home, however, involves many other costs that all crop up at the same time. We felt that the federal government could help to improve the situation at that point by increasing the tax credit. We suggest that it could go to $3,000, $4,000 or $5,000. This would really help people in situations where they need help the most.

[Georges Lambert]

A program to assist with downpayments is the second recommendation in our brief. This could be an amount corresponding to that which has already been saved for a downpayment. For instance, if people have already saved $10,000, $12,000 or $15,000, the government could lend that amount, that is to say offer to match the savings for the downpayment, and the couple or household receiving that assistance would have approximately seven years to reimburse the loan. This would represent a relatively minimal cost for the government. We provided examples of parameters but we have not quantified the overall cost because when new measures are brought in, the households and purchasers become interested and behaviours change. This may also encourage people to buy. At that point, you have to take people's reactions into account and it is very imprudent to try to quantify what the cost of those measures may be.

[François Vincent]

I would add that certain governments have put in place similar downpayment-related measures. The Government of British Columbia has just announced that it will be offering assistance for downpayments on the purchase of a first home, up to $37,000, or 5% of the value of a home costing less than $750,000. Locally, the City of Montreal will finance up to 5% of a condo purchase, which is less than the amount granted by the SHDM. The buyer reimburses the loan when the mortgage is refinanced or when the house is sold. The City of Quebec has put in place a similar program. This may represent a cost for the government but in the end, it is reimbursed. In the long run, this proposal may well be appropriate.

[The Vice-Chair, Conservative, Ron Liepert]

Thank you.

I'm going to move to Mr. Fergus, but I want to say that in about two minutes the bells are going to start. I'll have to interject and get unanimous consent to continue on.

You have five minutes, sir.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Liepert.

Thank you all for coming. I'm glad that you've had an opportunity to present not just a snapshot of what's happening but the full story.

Just considering the last question, I did appreciate that you had an opportunity to respond to Monsieur Caron's very good question about whether or not this was traditional in terms of the level of consultation of your specific companies by the government.

Mr. Taylor, I'm interested whether you could describe to me—because I'm new to the finance committee—a bit of a profile in terms of the customers who come through your membership stores. I'm trying to figure out whether they carry more or less leverage than more traditional means. Do they have more of a...? You know, can you use a loan-to-income metric, or a debt-ratio metric?

Can you give me a bit of a description, a profile, of your average customer—not your best, not your worst?

[Paul Taylor]

Thank you very much for the question.

This may take a moment, so I apologize if I get long-winded.

We're an association of mortgage lenders, mortgage insurers, and mortgage brokers. The lenders within our community actually include TD and Scotiabank. We also have First National, Street Capital, MERIX Financial, and a whole raft of others. All that to say, we have some very large balance sheet lenders as part of our association, and we have some much smaller lenders that you would call more traditional mortgage finance companies.

The mortgage finance companies are much more reliant upon the insurance mechanisms currently available in the marketplace for capital adequacy and liquidity. The larger lenders have more access to their own balance sheet, so they can hold the loans themselves.

Is that adequate? Would you like additional—?

[The Vice-Chair, Conservative, Ron Liepert]

If I could just interject for a moment, I need unanimous consent to continue since the bells are going.

Do I have unanimous consent?

[An hon. member]

Yes.