We have had several updates from our mortgage brokers with respect to the new mortgage policies put into place yesterday. After weeks of speculation Jim Flaherty announced some changes to mortgages and lending practices We feel that these are prudent changes that will have minimal impact on the majority of buyers. Read below for details.
Ottawa toughens mortgage rules
OTTAWA -- Amid warnings about reckless housing speculation and overextended homebuyers, Finance Minister Jim Flaherty said Tuesday the federal government would make it tougher for people to get a mortgage. He said at an early Tuesday morning media conference that Ottawa would require all borrowers meet standards (ie qualify) for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage.
That is the key move announced Tuesday. Other rule changes unveiled would affect people looking to refinance their existing mortgages -- lowering the maximum amount that can be withdrawn to 90% from 95% -- and place a 20% minimum down payment for government-backed mortgage insurance on non-owner-occupied properties. This would apply to rental/investment properties as well buying new condos.
But the Minister said the changes, to take affect April 19, were not meant to stop a possible housing bubble, as some warned was upon us.
"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one," Mr. Flaherty said. "Our government is acting to help prevent Canadian households from getting overextended."
The decision to adopt new mortgage rules emerged after nearly a week of dire warnings from prominent Canadians -- such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge -- that the housing market was on the verge of possible trouble, as price increases were not sustainable and present mortgage rules were too lax.
Frank Techar, president, personal and commercial banking, BMO Bank of Montreal, said the bank supports Ottawa's moves, but added it also does not believe the country faces a housing bubble.
"Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent," Mr. Techar said in a statement.
He said the bank "for several months now" has been encouraging Canadians to stress test their financial budget using a mortgage payment based on a higher interest rate.
The Department of Finance in 2008 said Canada Mortgage and Housing Corp. would limit amortizations to 35 years and offer loan insurance on only 95% of the loan value. The government's housing agency had offered mortgage insurance on loans worth as much as 100% of the home value and amortization periods of as many as 40 years since 2006.
Canadian home prices and resales will grow to records this year, boosted by low interest rates, the Canadian Real Estate Association said in a report last week.
Canadian new-home prices rose 0.4% in December from November, the sixth straight gain, according to government figures.
As recently as two weeks ago Mr. Flaherty said there was "no substantial concern" about the emergence of a housing bubble after meeting with private-sector economists. And in an interview with the Financial Post in late December, he said there was "no evidence" of asset bubble in real estate.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2569008#ixzz0fhuH997I