Canadian banks are not likely to impose stricter mortgage qualifying rules on their own to curb the nation’s rising household debt, TD chief executive officer Ed Clark told The Globe and Mail.
The banks fear they will suffer a major loss of customers to rivals so it would be up to the government to change mortgage policy if that’s the biggest concern for personal debt. “Personal banking is a highly competitive industry,” Clark told the national newspaper. “If we said, ‘Look, we’re going to be heroes and save Canada from itself, and we’ll impose a whole new mortgage regime on everyone else,’ the other four big banks would say ‘Let’s carve them up.’”
Earlier this week on Monday December 13, Finance Minister Jim Flaherty
said if necessary Ottawa would tighten the mortgage rules further. TD’s analysis shows the most direct way to help the debt situation would be to shorten the maximum amortization schedule from 35 to 30 years.
Other options include forcing homebuyers to pay a higher minimum down payment, or extending the qualifying rate to six or seven years from five.
“Borrowers have become used to low rates and are borrowing more money, thinking that these low rates are sustainable,” Margo Wynhofen, Verico
One Mortgage Corp. broker and president of the Independent Mortgage Brokers’ Association (IMBA
) of Ontario, told MortgageBrokerNews.ca
. “When mortgage rates go back up to seven-and-a-half, eight per cent, those payments will not be sustainable.” Wynhofen asks her clients if they’ll be able to afford the mortgage when the rate does eventually return to normal levels. But she sees other types of consumer debt as the bigger issue.
comment board from the Flaherty announcement
shows other brokers are also pointing to non-mortgage-related places where the debt problem is being compounded, such as credit cards and car loans. “If any industry should be regulated, it should be the auto finance industry,” said one on MortgageBrokersNews.ca
. “I see people who do not qualify for a mortgage debt consolidation but they are able to get a new car financed.”
Another wrote: “It’s credit card debt that’s the issue. The policies are way too loose in the first place. Every credit application should have to qualify on its own merits. There should also be support documents required and verified. The Canadian banks rake in huge profits off credit cards, lines of credit and loans. Of course the banks are not going to want tighter restrictions on the higher interest-generating business. Why ask them? Killing the mortgage industry is not the answer.”