Flaherty announces Tighter Mortgage Rules
Finance Minister Jim Flaherty is changing mortgage rules to make it harder for people with limited means to buy homes or borrow on ones they already have.
The changes to Canada Mortgage and Housing Corp. rules announced by Flaherty on Thursday will cut the maximum term of insured mortgages to 25 years from the current 30 years and will end insurance for homes which cost more than $1 million
The changes will also limit refinancing loans to 80 per cent of the value of a home, from the current 85 per cent.
The latest moves are part of a string of initiatives undertaken recently by the federal government to slow the accumulation of debt by Canadian households, which reached a record 152 per cent of income in the fourth quarter of last year.
Flaherty said the changes are aimed at promoting stability in the financial system as a whole. The housing market is a barometer for that system.
“We are continually monitoring the housing market,” he said.
He said his measures are especially aimed at cooling the condo market is places such as Toronto, Vancouver and Montreal.
“In Toronto, in particular, what I’ve observed and heard about . . . is continuous building without restriction because of persistent demand . . . this distorts the market.”
He said he wants people to be cautious.
“Some calming of the market is desirable,” he said.
But he says his changes will hit only a small number of people.
“What we anticipate is less than five per cent of new home purchasers will be affected by these measures,” he said.
“Some people will buy less into the market . . . . I consider that desirable,” he added.
Thursday’s announcement marks the fourth time Ottawa has tightened mortgage rules since 2008.
Central bank governor Mark Carney has been warning for several years that some Canadians are getting over their heads with debt and that they could face problems once interest rates — which sit at historic lows — start rising or if there is a second economic crisis.
Recently, the Bank of Canada estimated that the number of households in arrears could almost triple to 1.3 per cent if the unemployment rate were to rise by three per cent, about the same as occurred in the 2008-09 slump.
But the central bank has resisted raising interest rates — which would discourage borrowing —fearing such a move would damage a weak economy and raise the value of the loonie, which in turn would have an impact on sectors like manufacturing and tourism.