On Monday, the federal Finance Minister
announced the changes to be made in mortgage rules to counter the possibility of
a housing bubble. The three significant changes
include:
35 years to 30 years. The limit was brought down from 40 year to 35 years
in 2008 October.
to 85% of the property value. The limit was brought down from 95% to 90%
in 2010 April.
be effective from April 18. Lowered payback time will affect new home buyers
and the demand is likely to see a dip. According to the Finance Minister, the
withdrawal of home equity line of credit insurance is particularly important as
its increased popularity was one of chief factors causing increased housing
debts. The changes will also help Bank of Canada avoid policy rate hike, which
would have had harmful effects outside the housing sector as well.
The Bank of Nova Scotia senior economist Adrienne Warren opines that these changes
will result in lowered real estate activity. The carrying cost of a house is
raised by $100 on an average due to the change in pay back rules. People will
be induced to take debts of smaller amounts than before.
Calgary Real Estate Board’s outgoing president Diane Scott said that the
changes will have a minimal effect. ATB Financial senior economist is of a
similar opinion and supports the government move, calling it a positive
precautionary step. According to TD Bank Financial group senior economist
Pascal Gauthier, the changes would affect sale of around 20,000 homes
throughout Canada, weakening the sale price on an average by a percent.
