Ottawa Poised to Tighten Mortgage Lending

By
Frank O'Brien Western Investor
February 17, 2012






The federal government appears poised to further tighten mortgage lending, according to experts speaking at a real estate conference in Vancouver.

"The signals from Ottawa are that changes could be coming, and soon, for shortening amortizations and changing mortgage eligibility rules," Kyle Green, a broker with Mortgage Alliance, told the Jurock Land Rush conference on Feb. 4.

The catalyst is the soaring number of mortgages insured by Canada Mortgage and Housing Corp. (CMHC). CMHC was insuring $541 billion as of September 30, 2011. This is close to the current $600 million limit that CMHC has for mortgage insurance, which was increased three years ago when its then-$450 million cap was reached.

Although Ottawa could increase the limit, it may not want to if it thinks too many people are borrowing more than they should, according to Green.

Mortgage rates have been at record lows in recent months. In January some of Canada's biggest banks began advertising record-low fixed-rate mortgages at 2.99 per cent for five years (since withdrawn).

Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have been warning that Canadians have been racking up too much debt as a result of a long period of ultra-low interest rates.

Ottawa has tightened mortgage lending rules before. Last year the federal government reduced the maximum amortization period for new CMHC-backed insured high-ratio mortgages to 30 years from 35 years, and cut the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent.

The government has also withdrawn insurance backing on non-amortizing home equity lines of credit.

Green suggested ways the government could change mortgage lending criteria for those taking out a CMHC-insured mortgage.

  • Raising the downpayment from 5 per cent. Last year the downpayment for investors and those buying second homes was increased to 20 per cent, but it remains at 5 per cent for buyers of principal residences.
  • Shortening the maximum amortization from 20 years to 25 years.
  • Raising the bar for income eligibility.
One lender has also limited mortgages on a home to $1 million.

Some lenders have already started to restrict lending to new immigrants and self-employed people who can't provide solid evidence of their stated income.

While some say such moves could cool the housing market, it must be noted that the same was said last year when mortgage rules were tightened. Canada's housing market, however, went on to post near-record MLS® sales and the highest average prices on record.


Frank O'Brien is the editor of Western Canada's biggest commercial real estate newspaper, Western Investor, as well as a contributing editor at West Coast Condominium, real estate contributor to Business in Vancouver and a regular media commentator on real estate investment.
© Copyright 2016

Comments

REW.ca welcomes your opinions and comments. We do not allow personal attacks, offensive language, unsubstantiated allegations or self-promotional content, including promotional website links. We reserve the right to unpublish comments, to edit them for length, style, legality and taste, and to reproduce them in print or online. For further information, please contact the editor or publisher, or see our Terms and Conditions.

comments powered by Disqus

Email to a Friend

Close

Get the REW.ca Newsletter
Most Popular
Start Your Real Estate Search with REW.ca

REW.ca is your best tool for real estate search. You'll find both MLS® homes and new developments for sale. MLS® listing search covers the real estate boards of Greater Vancouver, the Fraser Valley, Chilliwack, Vancouver Island, and Whistler. Sign up for free property alerts and read BC real estate news.

REW.ca is the online arm of the largest real estate market newspaper in the Lower Mainland: Real Estate Weekly.

The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by CREA and identify the quality of services provided by real estate professionals who are members of CREA.