The latest federal government reforms to mortgage rules should help rejuvenate the market for insured mortgages, says Morningstar DBRS.
The rating agency revised its outlook for insured mortgages in a new report, citing the reforms announced earlier in the month. Those would allow for 30-year amortizations for first-time home buyers as well as boost the price cap from $1 million to $1.5 million — and the rating agency expects those measures will prove effective at boosting the demand for insured mortgages.
“The new reforms go much further” than the measures announced in the latest federal budget, which DBRS expected to only have a minimal impact on the market. The previous measures would have done little to stem the long-running decline in insured mortgages, and their falling share of the overall mortgage market, the rating agency said.
According to the new report, the value of banks’ insured mortgages have dropped by about $150 billion since mid-2016 to $385 billion. Over the same period, the value of uninsured mortgages has almost tripled to $1.2 trillion, it added.
“The gap between the insured and uninsured mortgage markets has drastically increased over time, suggesting a potential structural deficiency in the government-backed insured mortgage program,” the report said.
However, in light of the latest policy changes, which are due to take effect in mid-December, DBRS expects renewed growth in the segment.
“This presents a positive development for the mortgage insurance sector, despite some incremental risk associated with higher-priced properties and longer amortizations,” it said.
And as the reforms drive growth in the segment, DBRS expects that “private mortgage insurers to maintain their conservative lending practices and to show robust profitability and capitalization metrics while absorbing additional business volumes.”