Further tightening of Canadian home mortgage rules may be under consideration, according to a report in the Financial Post. Speculation that tighter mortgage rules may be in the offing “stem from comments made by the Bank of Canada Governor [Mark Carney] who last week warned that consumer borrowing could not continue at its present clip.”
While federal Finance Minister, Jim Flaherty, met with top finance officials for pre-budget discussions on October 4th, and the subject of tightening mortgage regulations reportedly did not come up, this did not allay speculation amongst analysts that further tightening may be in the cards.
TD Bank Financial Group’s chief economist, Craig Alexander, reportedly told the Financial Post that “while he hasn’t heard specific talk about changes to mortgage rules he could see it happening if the [housing] market heated up again.” Mr. Alexander speculated that the easiest way to tighten mortgage rules would be to “tweak the income test requirement.”
According to Mr. Alexander, instead of home purchasers qualifying for mortgages backed by the CMHC “based on the rate on their [mortgage] contracts – the case for terms five years or longer – they would be tested on the posted rate, which is considerably higher and requires more income.”
While Canada’s much more conservative banking and mortgage rules protected Canadian mortgage and housing markets from the widespread abuses in the U.S. that sparked the 2008 financial crises – and which continue to roil U.S. markets – Canadian mortgage regulations were, in fact, already tightened in 2007, and again last April.
While Bank of Canada Governor Carney expressed his concerns that “Canadian household balance sheets are becoming increasingly stretched,” with additional risks created by the central bank’s “historically low interest rates,” Mr. Alexander cautions that further tightening of mortgage rules – particularly if new rules imposed further lowered amortization periods, or (worse) increased minimum down payments to qualify for CMHC mortgage insurance – “could seriously impact the housing market.”
A tightening of federal mortgage rules and regulations along such lines would, of course, discourage first-time home buyers by raising the bar to homeownership; a bar that is already set high due to the affordability of starter homes in many Canadian markets.
