Are tighter mortgage rules hurting our economy?
A study from the Canadian Association of Accredited Mortgage Professionals (CAAMP) has highlighted the effect of Ottawa’s latest mortgage changes on the housing market here in Canada. Thy cite an average resale activity decline of 8% between August and October of this year, and the same period a year ago.
The major change that affects the most Canadians was the decision to reduce the maximum amortization period of insured mortgages (those clients putting less than 20% down) from 30 years to 25 years. The main benefit was reducing the monthly payments, and qualify for a larger loan, as the interest for the loan would be paid over a longer time period.
CAAMP looked at mortgages funded in 2010, and noted that under the new, changed rules, 17% of mortgages would not qualify today. This included 11% of high ratio home buyers who, under the new 25 year maximum amortization, would not qualify.
My concern is that a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole
“This smaller number of first time buyers is already impacting the resale market, which in turn threatens to dampen economic activity more broadly,” said the group, in a release.
CAAMP surveyed 2,000 mortgage holders, and found that the ‘vast majority’ were acting responsibly with their debt, the main concern with the mortgage changes lie with them affecting the market, job creation and economy as a whole, rather than just first time buyers who are looking to get into the market.
People who are looking to trade up in the housing market will also feel the pinch, as they find a dried up pool of first time buyers, who would at one time be able to snap up their properties.
Lower rates have been good for Canadians too. Of the respondents who renewed in the last year, 61% saw a reduction in their interest rate.