What Could Go Wrong?

Posted on Posted in Burlington, Caledon, Market Commentary

What Could Go Wrong?

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During each federal election, the intended policies offered by each candidate will always have varying opinions depending on which Canadian you speak to. Conservative Party leader Andrew Scheer has discussed a plan that is certainly a topic of debate.

This latest proposition is that the Bank of Canada removes the financial parameters associated with the mortgage stress test, specifically regarding mortgage refinancing.

Meanwhile, household debt has hit $2.2 trillion, or 177%, of the average income. The motive for this potential shift is the lack of mortgage approval being received by young Canadians, particularly those in their 20s and early 30s, due to non-fulfillment of the stress test qualifying factors. Nonetheless, this begs the question, are these individuals financially equipped to take on the substantial loans they are seeking?

Regrettably, the Globe & Mail has identified the top 100 most financially stressed neighbourhoods in Canada, 98 of which are suburban enclaves.  Where the average homeowner pays approximately 22% of their after-tax income on interest payments alone.

Furthermore, a recent article from the Globe & Mail titled Living on the Edge highlighted a very typical case of a 29-year-old with an annual income of $30,000 being given the responsibility of a $700,000 mortgage.  Setting that aside, this individual had already accumulated $24,000 in credit card debt. (Younglai, R., Wang, C., 2019). With debt payments surely exceeding one’s monthly income, plus the remaining costs of living, how is one expected to pay-off this debt that was noted to be within his or her scope of affordability?

According to an article from The Star titled CMHC defends mortgage stress test rules against ‘tragic consequences’ of loosening them, Mr. Evan Siddall, the President & CEO of Canada Mortgage & Housing Corporation (C.M.H.C), is quite supportive of the mortgage stress test. Essentially, he argues that it forces potential borrowers to prove their ability to repay their mortgage should there be sudden changes in their current income and interest rates. He further advocates that the needs of Canadian Taxpayers, as well as the Canadian economy, are his areas of focus and protection. (Sagan, 2019).

If you have any additional questions, please feel free to contact any of our three offices in Caledon, Burlington or Liberty Village. We would love to discuss your position on this matter!

Check out the following links “Ray Dalio says the world has gone mad with so much free money.”

https://www.bloomberg.com/news/articles/2019-11-05/ray-dalio-says-the-world-has-gone-mad-with-so-much-free-money

https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/

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