Flaherty brings in tougher mortgage rules

16/02/2010 9:45:29 AM

CTV.ca News Staff
Homeowners will be required to meet the requirements of a five-year, fixed-rate mortgage if they wish to qualify for a Canadian Mortgage and Housing Corp.-insured home, under new mortgage rules announced by Finance Minister Jim Flaherty.


The finance minister announced a set of tougher, forthcoming mortgage rules Tuesday morning, which he said have been brought to ensure that prospective homeowners are not vulnerable to rising interest rates and onerous levels of debts.

Prior to Tuesday's announcement, borrowers were required only to meet the standards of a three-year, fixed-rate mortgage -- now that jumps up to five years.

"This will help Canadians prepare for higher interest rates in the future," Flaherty said.

"One must always guard against the temptation to take on more financial risk simply because interest rates are low. Our government is acting to help prevent Canadian households from getting overextended and acting to help prevent some lenders from facilitating it."

The new rules are expected to come into effect on April 19.

In addition to having to meet the five-year, fixed-rate mortgage requirements to qualify for a CHMC mortgage, borrowers will be limited in the amount of refinancing they can undertake, Flaherty said.

"We will lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes," he said.

"This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up," he added.

"We are encouraging people to build equity over time, using homeownership as an effective way to save, rather than as a vehicle for quick cash."

Flaherty also announced a third new change targeting housing speculators, who will now have to put down a 20 per cent down payment on properties they will not be living in, if they want to qualify for a CHMC-backed mortgage.

Flaherty said the government is not trying to crack down on investment properties such as rental units.

"What we're getting at is the speculation in multiple-condo markets, in particular," he said, making reference to incidents in the Vancouver and Toronto markets as examples.

Preventative measures

Flaherty said the three changes were necessary to prevent future problems and he insisted they would not make it harder for Canadians to buy houses.

"The only restriction would be qualifying at a five-year, fixed-term basis, which is a credit qualification that a number of our chartered banks have already gone to," Flaherty said.

"I think that most prudent Canadians would want to have that level of ‘credit-worthiness,' of credit qualification, so that they could rest assured that their house would remain affordable -- and the mortgage remain affordable -- when interest rates rise, as they inevitably will."

Pointing to mortgage changes the Conservative government instituted two years ago -- including a minimum five per cent down payment for new mortgages and a maximum 35-year amortization period -- Flaherty said they also helped Canadians avert the kind of housing crisis seen in the United States in the current recession.

BNN's Michael Kane said it is Flaherty's position that while there may not be a housing bubble immediately on the horizon, he wants to be proactive in preventing one from forming.

"What Mr. Flaherty is saying here, is that even though he doesn't see the bubble really forming at all, to put certain measures in place so one does not get the chance to build is the prudent thing to do," Kane said Tuesday morning from Toronto.

"Again, he reiterated a couple of times that there is no damage being created in the housing market right now. But it's just that it is an economic fact that when you pump billions and billions of dollars into an economy, you are going to get little pockets of pressure building and housing is one that has been a little soft, and as a result, when the economy starts to reheat and re-inflate, then that's one area that you don't want to have damaged."

Overall, Flaherty said the Canadian housing market is "healthy and stable," with about two-thirds of Canadians owning their own homes.

"Our housing market… has been a source of strength for our country and a source of growing wealth for hardworking Canadians themselves," Flaherty said.

With files from The Canadian Press