Feds Make Mortgage Changes in Wake of Building Concern By Banks
So, here we are in the midst of several signficant changes regarding Canada’s mortgage market. If you haven’t already heard, (see article from Canadian Press) Finance Minister Jim Flaherty says the government needs to take pre-emptive measures to ensure Canadians don’t get caught servicing too much debt, should housing prices cool-off.
The government keeps stressing there should be no reason for immediate or overdue concern about any sort of ‘housing bubble’ existing here in Canada. However, based on the latest moves by the feds I wouldn’t be surprised if you’re a little intrigued about the latest changes – all designed to be a ‘better safe than sorry’ approach.
The article notes these changes, which are set to take effect as of April 19/10:
In order to qualify for an insured mortgage, borrowers will have to meet the standards for a five-year fixed-rate mortgage even if the interest they are paying is less.
The government will also limit the amount Canadians can borrow on their homes from the current 95 per cent of the value to 90 per cent.
Housing speculators will now have to put down a 20 per cent down payment on properties they will not be living in, to qualify for a government-backed mortgage.
And surprisingly, these changes may have something to do with the fact that, “the heads of our country’s six largest banks privately told Bank of Canada
governor Mark Carney, in November, that they fear a potential collapse in house prices and the ensuing potential for economic damage,” as reported in The Globe and Mail, just days ago.
That article goes onto say, “The banks reportedly want Ottawa to mandate tighter rules on mortgages so that buyers will need a larger down payment – as much as 10 per cent. They also want Ottawa to reduce the maximum amortization period of a mortgage to 30 years from 35.”
So far, the latter hasn’t happened. But it’s interesting that we’re suddenly seeing some ‘preventative measures’ put into place – even though the feds still seem to insist we’re not in any sort of housing-bubble, and won’t be in the foreseeable future.
I’ll leave you to decide how much this latest information is, or is not, a contradiction of sorts. And somewhere in the middle, the consumer will be directly affected and will be making future buying decisions in the wake of these changes.
Certainly, it could be argued that we will see buyers and activity (depending on each market) either pick-up or alter as consumers decide whether to take advantage of current rates, prices and mortgage options – versus waiting until after the proposed April 19th deadline, which could certainly make it harder for many to qualify and hold with regards to investment properties, debt-ratios, and refinancing.
Overall, I certainly don’t think any of us should have been expecting things to stay status-quo for much longer. As we re-group and the Canadian economy continues to try and rebound, the dollar stays at or near parity with the U.S., housing markets stay strong, or perhaps they soften a bit, and as we move forward and inflation and interest rates eventually do begin rising – don’t expect it to truly get any easier to afford a home, in just about every market.
The next 6-8 months will definitely be interesting. Stay tuned.
