If the Canadian government acts on a major national industry group’s recommendation to help first-time homebuyers get a leg up, it will still fall short of providing the relief much needed in the pricey Toronto and Vancouver markets, a new report suggests.

Earlier this month, the Canadian Home Builders’ Association (CHBA) said it was in talks with federal policymakers about housing affordability. The CHBA floated the idea of bringing back 30-year mortgages for first-time buyers, something policymakers scrapped in June 2012.

While a homebuyer in Canada can obtain a mortgage from a federally-regulated lender with an amortization period (that’s how long a borrower has to pay back their loan) as long as 35 years, insured mortgages are capped at 25 years under the current rules.

With an insured mortgage, a homebuyer can put down as little as 5 percent towards the value of a property, making it a viable option for often more cash-strapped first-time homebuyers who can’t cough up the 20 percent required for an uninsured loan.

Extending the amortization period, then, makes sense as an affordability-focused measure. After all, it does give a shot in the arm to borrowers’ potential buying power.

In fact, Capital Economics calculates first timers’ buying power would be lifted by 8 percent if they could only have five more years to pay back their mortgages, the economic research firm says in a Canada Economics Update.

However, although that may have a meaningful impact in housing markets across the country, in pricey markets such as Toronto and Vancouver, it’s not enough.

“The problem, though, is that these buyers’ budgets are typically far smaller than average house prices, especially in the big cities,” writes Stephen Brown, a senior Canadian economist for Capital Economics.

There is a considerable gap between the average first-time buyer home price and the average home price in Toronto and Vancouver, Capital Economics notes.

“Changing the rules for first-time buyers would therefore do relatively little to support the housing markets in Toronto and Vancouver,” Brown continues.

The head of a large Canadian real estate brokerage also notes another way in which extending amortizations may not be the best way to help first-time buyers. “Increasing the amortization period just means you’re going to pay more interest over the term of the loan,” Brad Henderson, the president and CEO of Sotheby’s International Realty Canada, tells Livabl.

Henderson suggests a more effective way for the federal government to help homebuyers would be to look at relaxing the stress testing that was implemented last year.

“It’s one thing to qualify for a mortgage with today’s current rates, but ….. to essentially double it (the qualifying rate) means that you’re probably being pushed down 20% or 30% in terms of the value of a home that you can afford,” notes Henderson.

More Time to Pay-Off Mortgages Won’t Be Enough to Help Struggling Toronto & Vancouver Homebuyers by Josh Sherman | Livabl