For the past year (and more!) we’ve been listening to Bank of Canada’s Governor, Mark Carney, and Finance Minister, Jim Flaherty, harp on us about how much debt we’re carrying. Those warnings have been an ironic backdrop to a housing market that continues to be overvalued in many areas and most recently, the bidding war on low mortgage rates that the major lenders here in Canada have been having. So with the government saying one thing, and Canadian consumers going out and doing the exact opposite, what are we supposed to do? We sit, and we wait.
We’re waiting to see if the government of Canada will impose stricter rules on Canadian mortgages. That was what they did last year to try and help Canadians from getting in over their head, and the government is talking about doing it again, especially if we continue to go further into debt. So what new rules are we waiting for? One of them would be a change to the sale of condominiums. As it stands, a condo buyer only needs to prove that they can afford to take on the mortgage of the condo; the lender doesn’t need to take the additional monthly fees into consideration. That would change under the new laws, where all costs would be taken into account. This is one change the government wanted to make on mortgages last year at the same time they imposed the new HELOC rules. The change didn’t make the list back then, but if the government needs to impose tighter rules, this is one of the first ones up.
The biggest change though, will most likely be to self-employed mortgages. As it stands, if a self-employed individual wants to obtain a mortgage, they only need the required 20% down payment in order to avoid paying mortgage insurance provided by Canada Mortgage and Housing Corporation. Those that are self-employed can also currently just state their income, as opposed to those that must verify it. Stated incomes vs. verified incomes was one of the biggest problems the United States had during their housing crisis, and one that allowed so many homeowners to get in such big trouble and lose their homes. By implementing these new self-employed borrowing measures, the government of Canada is hoping to avoid the same situation.
Nothing has been changed just yet, but the government is ready to step in and take control if things get too out of hand. In a CTV interview this past Sunday, Mark Carney said, “We see that in a number of real estate markets in Canada, valuations are at a minimum, firm; in others, they’re probably overvalued. So there are risks there. We’re watching it closely. We’re working with our partners, the federal government, the superintendent of financial institutions. Measures have been taken. They’ve been effective. We’ll keep up that vigilance. If more needs to be done, I’m sure the appropriate authorities will take those measures.”
What do you think? Do you think the Canadian economy, or the Canadian housing market, is in trouble? If so, do you think these new proposed rules would help?
