The changes to mortgage rules announced by federal Finance Minister Jim Flaherty won’t have much of an effect on the local housing market, according to WinnipegREALTORS® president Ralph Fyfe.
One measure announced by Flaherty is the lowering of the maximum amortization period for government-backed insured mortgages from 35 years to 30 years with loan-to-value ratios of more than 80 per cent.
“Mortgages are still palatable in all price segments,” said Fyfe. “The tightening of mortgage regulations will only have a small impact on the market as local home buyers are amortizing their mortgages for 25-year and 30-year periods, anyway.”
Despite the limited impact, Fyfe said some purchasers, particularly first-time home buyers, will probably react to the announcement by rushing to complete transactions on homes before the change comes into effect on March 18.
Flaherty announced “prudent adjustments” to the rules for government-backed insured mortgages to support the long-term stability of Canada’s housing market.
The new measures are in reaction to growing debt among Canadians, which has been fuelled by historically low interest rates. Debt to disposable income is now 148 per cent, with home-equity lines of credit and loans representing 12 per cent of household debt.
Flaherty said reducing the amortization period will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
While Manitobans are carrying more debt as a result of increased home prices, the province still has the lowest level of consumer per capita debt in Canada, according a report by the Institute of Chartered Accountants of Manitoba released in October 2010.
At 11 per cent, Manitoba had the greatest increase in consumer debt per capita last year, but at $20,463 it was the lowest in absolute terms when compared to other jurisdictions.
Another report released late last year by TD Canada Trust indicated Manitoba home buyers are likely to reduce costs by making a greater down payment on a home, and then make accelerated payments (bi-weekly, bi-monthly) in order to pay off their mortgages more quickly.
Fyfe said local homes are more affordable than in most other Canadian centres, which means the impact of the changes announced by Flaherty will be less severe.
The monthly payment on a $200,000 mortgage at four per cent and amortized over 30 years interest will increase from $882 to $952, a $70 increase.
It’s an increase that still is affordable to most local home buyers, he added.
“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” said the finance minister. “The prudent measures announced will build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”
Other changes announced by Flaherty include lowering the maximum amount Canadians can borrow when refinancing their mortgages at 85 per cent from 90 per cent of the value of their homes, and the withdrawal of government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs, which takes effect on April 18.
The Canadian Real Estate Association said one measure the government thankfully did not take was increasing the minimum down payment from the current five per cent to 10 per cent, which had been under consideration.
CREA said such a measure would have a greater negative effect on the national housing market than the three changes announced by Flaherty.
CREA said it recognizes the government is trying to take reasonable and responsible action with respect to household debt, but is urging Ottawa to refrain from additional measures until it can fully evaluate and assess the impact of Flaherty’s changes to mortgage rules.