Finance Committee on June 11th, 2024

[Julie Dzerowicz, Liberal, Davenport, ON]

I appreciate that and the work that the team at the Bank of Canada is doing around this. I think it's at a time when we're moving into a different era, where house prices are very high and will probably continue to be very high moving forward. How is it that we can provide flexibility for Canadians in a way that doesn't sacrifice the credit quality of our banks but allows us to live in an affordable way and continue to own homes?

My colleague earlier today was talking to you about the stress test. In the early days of the pandemic, we heard from the head of CMHC then, and we talked about that test and how important it was to ensure that, during a time of global emergency and global crisis, many people would continue to be able to keep their homes because of that stress test.

Would you agree that the test helped us during the pandemic and, thereafter, continued to allow Canadians to be able to afford their homes?

[Peter Routledge]

The mortgage stress test did improve credit quality during the pandemic. More critically, I have been pleasantly surprised at the very low level of delinquencies in the Canadian mortgage space, and I attribute that to six years of the mortgage stress test, primarily.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. I appreciate that.

Our latest budget has introduced open banking. Most countries have had open banking for a number of years. I think Australia is on their third or fourth version right now. I wonder, from your perspective or from the Aussie perspective, whether there's any additional work you need to do to continue to ensure credit quality within our financial institutions, because of open banking or any other work that you feel you need to be doing or thinking about, moving forward?

[Peter Routledge]

There's a two-part answer.

The first part is that we saw it coming, and we developed a regulatory guideline on third party risk management, which should help the banks we regulate manage new relationships that will come as a result of open banking.

Longer term, we have to be watchful that, if those new players do decide to innovate beyond their immediate business model, which is to enable, effectively, customers to own their own banking data, and move from that model to one that involves taking deposits and making loans, they do that in a regulated space. If we let that activity go unregulated, we see it usually leads to bad outcomes.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Dzerowicz.

We go now to MP Ste-Marie for two and a half minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

To begin, I have a point of order.

When the Governor of the Bank of Canada appeared before the committee, Ms. Dzerowicz, Mr. Morants, Mr. Chambers and I asked him some questions that he promised to answer in writing. We received his answer last Friday. I want to check with you, Mr. Chair, that the committee agrees to publishing those answers and using them as though the Bank of Canada had provided them during the committee meeting.

[The Chair, Liberal, Peter Fonseca]

I'm looking to the members.

[Some hon. members]

Agreed.

[The Chair, Liberal, Peter Fonseca]

Monsieur Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Hello, Mr. Routledge. I want to thank you for all your work and for being here today.

According to the Canadian Bankers Association, 0.19% of mortgages in Canada were delinquent in February, meaning that no payments had been made for at least three months.

To what extent do you expect that this proposal will increase the delinquency rate owing the high number of mortgages that will be up for renewal between now until 2026?

How likely is it that this increase in defaults will lead to losses for financial institutions?

Finally, what steps are you taking to limit those risks?

[Peter Routledge]

That's correct. The delinquency rate is 0.19%. To put that into context, we've seen that rate go as high as 1.00%, so it's still fairly low.

Yes, unfortunately I do expect that rate to continue to go up as Canadians renew, and some have difficulty with that. What we've done is put in place some pretty serious capital rules or capital expectations to ensure that banks have buffers to absorb losses bigger than they expect. From what we're seeing, the delinquencies and the losses they're producing are at a low enough level that the banks, particularly the large ones, will handily absorb those losses through their earnings.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

We will hear from MP Davies for two and a half minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

I think I have it right that there's been a recent decision to increase amortization periods to 30 years. What impact might that have on your analysis?

[Peter Routledge]

I believe the member refers to budget 2024. In some cases, first-time homebuyers will be able to take 30-year mortgages out if the mortgage is insured. Net-net, that will increase the buying power of homebuyers. It's a very limited increase. It's first-time homebuyers. If your mortgage amortization period goes up from 25 to 30 years, your monthly payment goes down, so you can afford more house.

[Don Davies, NDP, Vancouver Kingsway, BC]

Doesn't it also bring more people into the market, thereby increasing demand?

[Peter Routledge]

Yes, at the margins, that would lower the monthly mortgage costs, and therefore you might open up the market for more buyers. However, home sellers know this. I would expect that a rational home seller, in realizing that the people looking through their house at an open house have a little bit more buying power, would increase prices. I think the benefit will be relatively short-lived.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thanks.

Finally, I think we've recently, in the last couple of years, put a ban on foreign buyers in the residential market. I'm curious to know whether you have any comment on that. Are we seeing any consequence or impact of that yet?

[Peter Routledge]

That ban is fairly limited, so we haven't seen any real effect on housing demand from it.

[Don Davies, NDP, Vancouver Kingsway, BC]

I'll flip that around. What's been the impact of foreign capital in our residential markets in Canada over, say, the past 10 or 15 years?

[Peter Routledge]

Not to be overly technical, but what is foreign capital? Certainly, it's someone who doesn't live in Canada buying a house in Canada, but—

[Don Davies, NDP, Vancouver Kingsway, BC]

That's what I mean.

[Peter Routledge]

Yes. That's low. What's driving demand for housing, though, are new Canadians who come in with financial resources and who then buy a home. I don't consider that foreign capital, but it is sourced from outside Canada. It is adding to demand for housing in Canada.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Davies.