Mortgage exec: easing rules would unlock access to homeownership for more buyers
Regulation of the mortgage industry is excessive at the federal level, according to a prominent Quebec-based broker who believes regulatory overreach is harming the housing market and homebuyer prospects.
Terry Kilakos (pictured top), president and senior mortgage broker at North East Real Estate and Mortgage Agency in Montreal, told Canadian Mortgage Professional the provincial regulatory framework in Quebec was “robust and appropriate” but that the market was being weighed down by excessive federal scrutiny.
“In my view, regulation has gone too far – but not at the provincial level,” he said. “The real issue is federal overreach.
“We’ve seen layer upon layer of federal regulations tacked on top of an already cautious lending environment, and the unintended consequence has been the systematic exclusion of young families and lower- to middle-income Canadians from homeownership.”
Mortgage industry’s regulatory debate rumbles on
Homebuyers borrowing from federally-regulated institutions are currently subject to a stress test, requiring them to prove they can afford a mortgage rate of either 5.25% or two percentage points above their contract rate – whichever is higher.
Supporters of that measure say it’s been an important way of ensuring borrowers can absorb the impact of rapid interest rate hikes and higher costs at renewal time. But Kilakos said the rule in its current form, along with tightened qualification rules and rigid underwriting standards, have made it much more difficult for buyers to afford a home.
“They’ve failed to adapt to today’s realities: rising rents, higher interest rates, and stagnant wage growth,” he said. “These measures don’t just curb risky borrowing. They also penalize responsible, hardworking Canadians who can clearly afford their homes but no longer ‘fit the model’ on paper.
“Mortgage brokers aren’t asking for reckless lending. We’re asking for intelligent, flexible policy that recognizes real-world affordability instead of one-size-fits-all formulas.”
Instead of “continuously tightening qualification rules,” Kilakos said regulators should focus more on outcomes, transparency and consumer education. “The industry doesn’t suffer from a lack of rules,” he said. “It suffers from rules that are disconnected from real borrower behaviour and real affordability.”
That means a greater emphasis on financial literacy and borrower preparedness: helping consumers understand credit, cashflow and long-term obligations, a focus he said would do more to reduce defaults than raising qualifying thresholds.
Are the government’s current housing priorities missing the mark?
In recent years, the federal government has introduced new policies to make homeownership more affordable for first-time buyers, including an extension of maximum amortization periods to 30 years and a hike of the mortgage insurability cap to $1.5 million.
Those changes have been credited by many mortgage market watchers as improving the outlook for new homebuyers, although other measures – such as an ultimately scrapped shared-equity program, the First-Time Home Buyer Incentive – have proven less popular.
But Kilakos said regulators and federal authorities should also focus on addressing what he described as outdated qualification criteria to make homeownership a more realistic goal for Canadians.
“Regulators should be paying closer attention to alternative data and modern underwriting tools,” he said. “Rent payment history, utility payments, and demonstrated savings behaviour tell a much more accurate story about risk than outdated credit models alone.
“If regulation evolved to reflect how Canadians actually live and pay their bills, access to homeownership could expand without increasing systemic risk. The goal shouldn’t be to restrict lending further – it should be to make lending smarter.”
Prime minister Mark Carney, who won a mandate just short of a majority in last year’s federal election, has focused on boosting housing supply and turbocharging construction as key priorities in solving Canada’s housing crisis, aiming to build up to 500,000 homes a year.
Kilakos, though, said meaningful change can’t occur without first addressing the “overly restrictive” federal rules around borrowing and mortgage qualification.
“Loosening them would create meaningful relief,” he said. “It would allow homeowners to refinance higher-interest debt, help young families actually get into homes, and let people move up or downsize without worrying about whether they’ll qualify for a new mortgage.
“Easing these rules would also help free up housing inventory, which is critical. More homes on the market would reduce pressure on prices, stabilize the housing market, and create healthier mobility for families.”
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