Ottawa's about-face to 'encourage responsible savings'
November 15, 2008
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Trish Crawford
LIVING REPORTER
It was a brief flirtation, but it's over.
While the American housing market has been devastated by the impact of "ninja" mortgages – no income, no job, no assets – Canada had its own short experiment with easy money.
The federal government introduced 40-year-amortization rates in December 2006.
In April 2007, it followed with 100 per cent loan-to-value ratio for government-backed (insured) loans.
It was widely seen as an effort to help first-time home buyers and low-income earners get into the market.
This summer, the finance department announced it was killing both initiatives on Oct. 15 "to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada."
Finance department spokesperson David Gamble said in a recent interview that the government wants homeowners to have more equity in their properties.
"These (new) measures are designed to help homeowners pick houses they can afford and encourage responsible savings."
The borrowers, with 5 per cent down, can get a maximum term of only 35 years and must achieve an increased credit score that is consistent throughout the lending community. That credit score is based on income, security of employment and credit history, under government guidelines.
As well, lenders are increasingly conducting independent property appraisals prior to mortgage approvals to ensure value is there.
This overcomes the "unique buyer" syndrome whereby one highly-motivated purchaser – perhaps smitten by gingerbread – is willing to pay more than anyone else would and therefore overpays for the market.
Email: living@thestar.ca
Toronto Star