Canada's 2023 Fall Economic Statement: What mortgage borrowers should know

The federal government released its Fall Economic Statement on Tuesday, and, like in previous iterations, affordable housing and mortgage relief took centre stage. 

A key focus of the budget update – which reveals the government will spend $20.8 billion over the next six years – is the national Housing Action Plan, which boasts a slew of spending and loan initiatives to boost housing supply. This will include:

• An additional $1 billion for its Housing Accelerator Fund over three years to build more than 7,000 affordable housing units, starting in 2025;
  
  
• A total of $15 billion in new funding to create more than 30,000 rental units via the Apartment Construction Loan Program;
  
  
• Agreements with nine municipalities to build 21,500 homes, in exchange for removing bureaucratic “red tape” to speed the approvals process;
  
  
• Removing tax incentives for owners of short term rentals in cities and provinces where such units are banned; affected landlords would no longer be able to claim income tax deductions for rental expenses, with the goal of de-incentivizing investors and freeing up supply for the ownership or long-term rental market;
  
  
• Increasing the annual limit for Canada Mortgage Bonds to $60 billion from the $40 billion, the proceeds of which to fund 30,000 rental units each year;
  
  
• An update on the First Home Savings Account, which allows first-time buyers to save up to $8,000 annually to a lifetime maximum of $40,000 tax-free to put towards a down payment. According to the feds, over 250,000 Canadians have opened a FHSA, which is now offered at more than 20 financial institutions.

Feds introduce Canada Mortgage Charter to counter renewal rate shock

The government also made it clear that the impact of upcoming mortgage renewals – in which an estimated 2.2 million Canadians will encounter “interest rate shock” when they renegotiate their loans at much higher interest rates – are of top concern.

Recent data from the Canada Mortgage and Housing Corporation shows 45% of all outstanding mortgages in Canada will face this predicament over the next two years, with payments to rise by an average of 30 - 40% – an extra $15 billion nationwide.

In response, they’ve announced the creation of an official Canadian Mortgage Charter, to further strengthen protections for affected borrowers, as well as expectations for financial institutions. This codifies the guidelines released by the Financial Consumer Agency of Canada (FCAC) in July, such as:

• Allowing temporary amortization extensions for borrowers who have hit their trigger rate, in order to protect them from negative amortization;
  
  
• Waiving any associated mortgage fees and costs that would have otherwise been charged for relief measures;
  
  
• Contacting homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options;
  
  
• Allowing homeowners to make lump sum payments to improve their equity and avoid negative amortization, or sell their home if necessary, without incurring penalties;
  
  
• Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization.

The Charter also reiterates the practice of exempting transactionally-insured mortgage holders from the stress test when switching lenders upon renewal, a development that was recently announced by Canada’s banking regulator OSFI. 

This in particular has drawn praise from Canada’s real estate industry, which has been advocating to ease mortgage qualification rules as interest rates and housing prices have risen sharply since the pandemic. According to a recent affordability study from Ratehub.ca, many borrowers are currently stress tested at 8% or higher, given fixed mortgage rates hover in the upper 5 - 6% range.

“This is a positive change to the current mortgage stress test requirements with close to 60% of Canadian mortgages coming up for renewal in the next three years,” stated Toronto Regional Real Estate Board President Paul Baron, in a response to the introduction of the charter. “This measure will give homeowners more flexibility to shop for the best possible rates and products, helping them save money during a time of heightened affordability challenges.”

Mortgage industry says more measures needed 

However, Mortgage Professionals Canada says the policy falls short, given only 27% of mortgages today are insured, compared to a 73% uninsured majority. MPC is advocating for the renewal exemption to apply to all mortgages in order to provide crucial relief, as well as improve competition in the mortgage marketplace.

“Almost half of non-owners think they will never be able to buy and more than two-thirds of homeowners are anxious about renewing in the current interest rate environment," said Lauren van den Berg, President and CEO of MPC. “We consider the clarification from the government that the reapplication of the stress test is not required for insured mortgages as a successful result of our advocacy. We were pivotal in bringing this important development to light.”

The association is pushing for additional changes to ease conditions for borrowers including:

• Introducing a return to 30-year amortization periods for insured mortgages to allow greater opportunities for home ownership and to level the playing field for all home buyers;
  
  
• Eliminating the stress test on all mortgage renewals, switches, and transfers;
  
  
• Increasing the insured mortgage cut-off from $1 million to $1.25 million, and indexing it to inflation to better reflect today's housing prices;
  
  
• Granting a digital income verification tool to the mortgage industry to help crack down on fraud;
  
  
• Establish a permanent national housing roundtable, bringing together all orders of government, industry, and the not-for-profit sector.
  
  

Also read:

• The First Home Savings Account: Everything you need to know
• What changes are in store for Canada’s mortgage stress test
• October CPI comes in at 3.1%, securing holiday rate hold
• Housing affordability improved in October as home prices chill
• The trigger rate: What you need to know