Jim Flaherty to announce tighter mortgage rules
OTTAWA — Finance Minister Jim Flaherty is expected to announce new mortgage rules today that will make it more difficult for Canadians with limited savings to buy homes, or obtain loans.
The new measures include cutting the maximum term of mortgages from the current 30 years to 25 years, where it was before the Conservatives came to power in 2006.
The latest move is part of a series of initiatives undertaken recently by the federal government to slow down the accumulation of debt of Canadian households, which reached a record 152 per cent of income in the fourth quarter of last year.
This will mark the fourth time Ottawa has tightened mortgage rules since 2008.
Central bank governor Mark Carney has been warning for several years that some Canadians are getting in over their heads with debt, and that they could face problems once interest rates — which sit at historic lows — start rising or if there is a second economic crisis.
Recently, the Bank of Canada estimated that the number of households in arrears could almost triple to 1.3 per cent if the unemployment rate were to rise by three per cent, about the same as occurred in the 2008-09 slump.
But the central bank has resisted raising interest rates -— which would discourage borrowing -— fearing such a move would damage a weak economy and raise the value of the loonie.
Instead, bank government Mark Carney has suggested that the best approach would be to specifically target the real estate market through changes to mortgage rules.
Not all economists have been calling for a clampdown.
In a report Wednesday, CIBC deputy chief economist Benjamin Tal noted that consumers are tapped out and that credit growth is slowing despite historically low interest rates meant to encourage borrowing and stimulate the economy. As well, the home prices and sales have been trending lower in recent months, with a few exceptions — particularly the still hot condo market in Toronto and to a lesser extent Vancouver.
Given the weak economy, Tal predicted the Bank of Canada may need to keep low interest rates in place until 2014.
But some analysts have also warned that moving too quickly to pour cold water on an already cooling housing market may deprive the economy of one of the few areas of strength.