Thursday’s announcement by Conservative Finance Minister Jim Flaherty marks the fourth time in four years the Conservatives have tightened the rules around mortgages in Canada. Experts believe Flaherty’s changes will have the desired effect and that they will dampen the real estate market in the long term.
OTTAWA – Conservative Finance Minister Jim Flaherty announced new mortgage rules Thursday that will make it tougher for Canadians to purchase homes.
The announcement marks the fourth time in four years the Conservatives have tightened the rules around mortgages in Canada, reported CTV News.
Among the changes announced Thursday to the Canada Mortgage and Housing Corporation: the maximum amortization period for a mortgage will be reduced from the current 30 years to 25 years.
“This will further reduce the total interest payments Canadian families make on their mortgage, helping them build up value in their homes more quickly and pay off their mortgage debt sooner,” Flaherty said.
And homeowners looking to borrow against the equity they have in their homes will be limited to a maximum of 80 per cent of the home’s value, down from the current 85 per cent.
“Limiting the amount of refinancing will encourage homeowners to prudently manage borrowing against their properties and keep equity in their home,” Flaherty said.
The changes come as Flaherty and Bank of Canada Governor Mark Carney warn that Canadians’ debt levels are reaching record highs.
Experts believe Flaherty’s changes will have the desired effect and that they will dampen the real estate market in the long term.
“These changes are in my opinion really directed largely at the condo market, where prices in Toronto have risen about five per cent in the last few months, notwithstanding the declines we’ve seen in Vancouver,” Queen’s Real Estate Roundtable director John Andrew said.
“Nationally, we can’t forget that prices are already starting to decline modestly as sales volumes have also come down to long-term averages,” Andrew told CTV News Channel Thursday.
He said it was interesting the government didn’t change the minimum down payment of five per cent for buyers to qualify under CMHC rules.
The minimum 20 per cent down payment to avoid CMHC insurance also remained unchanged.
“They not putting up these barriers for new entrants into the market, but by shortening the amortization period to 25 years, that’s akin to about a .9 per cent increase in the interest rate,” he said.
That should have a dampening effect on prices and sales activity, Andrew said.
Meanwhile, the Canadian Real Estate Association urged the government to consider the economic impact of future interventions in the market.
