Yesterday we posted that Jim Flaherty will be relying on the banks to tighten their own mortgage lending rules, rather than them relying on him to do it for them. There has been much response to the remarks Flaherty made on Thursday, and banks have already sprung into action. At least, when it comes to the condo market, that is.
In order to control the number of condo Toronto mortgages that are being approved, banks have made mortgage rules tighter for developers and builders that want to construct new condo buildings. Now before they are approved, builders and developers will have to show that they’ve already sold 70% of the units; but that’s not even the biggest rule change. The biggest change in rules shows that developers will also have to show that they’ve gathered 20% – 25% of the down payment on each unit. All of this will add up to tougher commercial mortgages for the developers and builders to obtain, which will have a trickle effect and result in fewer condos being built.
While the news may not be good to some builders, one Toronto developer says, “The banks feel they have a lot of exposure right now in the condo market and they’re being more careful about financing only the right developers – those with a strong track record – and the right project. The down payment seems to be the key. This is going to weed out a lot of the smaller builders and newcomers.”
This move might just be the answer that the hot Canadian housing market has been looking for over the past year; and it’s one that CAAMP, a national organization of mortgage brokers, may wholeheartedly agree with. They have already warned Flaherty, through a report sent to Ottawa, how crippling tighter mortgage rules could be to the Canadian economic environment. In that report, CAAMP showed just how much tighter rules would affect the construction sector and the unemployment rate – something that’s already on the rise. This move though, only tightens those rules for developers, slowing construction and reducing the number of empty units that sit on the market.
It seems the Finance Minister may have been right. He doesn’t need to tighten mortgage rules when the bank can do it themselves. And this move might just be one big step in the right direction.
