April 17, 2010 - Federal Finance Minister Jim Flaherty announced the new mortgage rules in February amid warnings that some homebuyers were taking on too much mortgage debt as house prices soared across the country and could be in trouble if rates rose.
“There is no evidence of a housing bubble, but we’re taking prudent steps today to prevent one,” he told a news conference in Otttawa at the time.
Since then, mortgage rates have risen nearly three quarters of a point in financial markets as investors anticipate the Bank of Canada will begin raising its own rates starting this summer.
Under the new rules, the federal government will:
— Require all homeowners meet the borrowing standards for a five-year fixed-rate loan even if they choose variable or shorter-term loans.
— Lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent from 95 per cent of the value of their home.
— Require a minimum 20 per cent down payment to qualify for CHHC insurance for non-owner-occupied properties acquired as an investment — a move aimed at cooling real estate speculation.
Flaherty did not change the rules affecting the five per cent minimum down payment or the 35-year maximum amortization period for a mortgage.
Almost all of Caporicci’s clients — he estimates 90 to 95 per cent —have been putting down the minimum five per cent down payment, often with the help of either their families or their own credit lines.
“It’s hard enough for people to get their hands on five per cent down,” he said, noting home buyers will continue with their creativity to get the money they need to enter the housing market.
Homebuyers also have been basing their decisions on a “buy now“ strategy to avoid the coming changes, Caporicci said.
It could very well be that buyers have been jumping into the market this spring to avoid the tougher mortgage requirements.
The Canadian Real Estate Association said there were almost 100,000 homes listed for sale in March, an increase of 20 per cent from the previous March record set in 2008.
The average national price last month was $340,920 and the markets with the most residential sales have been Toronto, Montreal and Greater Vancouver.
But RBC senior economist Robert Hogue said the changes to the qualifying rules are largely “tweaks” because banks have already been requiring that buyers qualify for a higher rate.
“It might raise the bar a bit relative to the practice up until now, but it’s not enough to tip the market,” Hogue said from Toronto.
And for buyers who may have been thinking a little too far outside the box with their financing, Hogue said the tighter rules will minimize their risk.
“The changes will bring more prudence to the marketplace,” he said.