Finance minister cracks down on speculators, tightens mortgage rules
OTTAWA - Finance Minister Jim Flaherty is tightening mortgage rules to crack down on speculators and discourage homeowners from taking on too much debt.
He is responding to growing concerns that Canada's housing market is overheating, although he stresses that there is no bubble in Canada's real-estate market - yet.
"There's no compelling evidence of a housing bubble, but we're taking proactive, prudent, measured and cautious steps today to help prevent a housing bubble," Flaherty said Tuesday.
The finance minister says all borrowers will need to meet stiffer criteria to take out mortgages. In order to qualify for an insured mortgage, borrowers will have to meet the standards for a five-year fixed-rate mortgage - up from the current standard of three years.
He's also raising the downpayment that borrowers must pay for speculative investments. If prospective home buyers want to purchase a property where they will not be living, they will have to come up with a 20 per cent downpayment, Flaherty said.
"We're not aiming here at investment properties" such as rental units, he said. "What we're getting at is the speculation in multiple-condo markets, in particular."
And he's imposing tighter restrictions on how much money people can borrow against their houses. Instead of being able to borrow 95 per cent of the value of their property, the limit will now be 90 per cent.
"This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up," Flaherty said.
"We are encouraging people to build equity over time, using home ownership as an effective way to save, rather than a vehicle for quick cash."
The new rules are expected to come into force on April 19.
Economists have advised the minister to be stricter on who can get new mortgages, but they've also warned the government not to put on the brakes too strongly, in order to preserve the fragile economic recovery.
"These measures may have some stabilizing effect on the housing market," Flaherty said. "Stability is a good thing for a consistent economic recovery."
The Bank of Canada has been warning for months that homeowners should ensure they can absorb an increase in their floating-rate mortgages once rates start rising, likely as early as this summer.