The reprieve Canadian brokers thought they had is no longer, with the Finance head confirming he will now lower the maximum amortization on an insured mortgage to 25 years and cap refinances at 80 per cent of a home's value.
But there's more, Jim Flaherty said at a press conference in Ottawa Thursday: His government will set a $1-million cap on the value of homes eligible for government-backed insurance and will restrict all would-be borrowers from mortgage insurance if their maximum gross debt service ratio exceeds 39 per cent and their maximum total debt service ratio rests above 44 per cent.
All changes are set to take effect on July 9, 2012.
Mortgage industry leaders were quick to respond.
"I find it quite intriguing that we have a federal government that continues to impose limitations on Canadians as it relates to home ownership in a housing market that has been a benchmark for most other countries for the past 5 to 10 years," IMBA president Albert Collu told MortgageBrokerNews.ca. "While I respect the government’s role to keep a close watch on economic conditions this is the type of change that is unnecessary and unjustified.
"Reducing an amortization for a $300K mortgage at 3.29% from 30 years to 25 years is a difference of approximately $156. Perhaps the government should finds ways of increasing the liquidity of consumers by changing tax policies, which are imposing taxes on Canadians at every turn."
CAAMP is also registering concerns about the effects of a double whammy for consumers, considering the OSFI changes in the pipeline.
"Taken together, the Minster’s ... announcement Thursday and the OSFI final guidelines may have an effect of precipitating the housing downturn that the government desperately wants to avoid," CEO Jim Murphy told MortgageBrokerNews.ca. "Research shows people are paying down the mortgages, CMHC stats show refinancing are down 22 per cent overall.
"Borrowers were getting the message. The government may be doing too much tinkering with the market."
The news, breaking, late Wednesday, promises to further cool a housing market already taken off the burner, with the number of sales and the price of those properties easing in many markets.
The changes around amortization mean homebuyers will likely qualify for less house.They currently can take out a CMHC-insured mortgage for 30 years, and existing mortgages with terms longer than 25 years won't be affected.
Existing homeowners, however, will be blocked from borrowing anything in excess of 80 per cent of the value of their homes and not the current 85 per cent they are allowed.
Mortgage brokers, in particular, have warned that such a move will act as a self-fulfilling prophecy, artificially creating a downturn in the value of Canadian homes and so destablizing the financial footing of homeowners.
Still, proponents of the dual move have suggested it as the only way to slow Canadian borrowing and keep people at risk from financial ruin if, in fact, they lose their jobs and the ability to meet payments.
The government appears to have accepted that argument, given the Central Bank, say analysts, has been effectively blocked from raising interest rates given the very real threat of global recession.