Jim Flaherty to tighten mortgage rules today
February 16, 2010
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Julian Beltrame
THE CANADIAN PRESS
OTTAWA–The federal government is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada's hot housing market.
Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.
Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.
Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home. But bank officials say they usually apply a cushion to ensure home buyers have sufficient income to meet payment requirements if floating rates rise.
Flaherty is expected to make such an income test a condition for acquiring a CMHC insured mortgage. Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments.
It is believed Flaherty rejected more radical measures to cool the housing market, which has reached record levels in sales and near record levels in average home prices despite the weak economy.
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.
By the central bank's own stress test calculation, almost one in 10 households would have a debt-service ratio making them vulnerable to economic shocks by mid-2012.
Toronto Star