The IMF doesn’t dictate monetary policy, but it is strongly suggesting Canada may need to ratchet up mortgage rules yet again if debt levels rise.
If consumer debt continues to increase rapidly and home prices “continue to outperform, there is clearly scope for a further tightening of measures,” Gian Milesi-Ferretti, the International Monetary Fund’s assistant director for North American, told reporters in Toronto. “But there are signs that mortgage debt, the rate of growth, is slowing."
The assessment comes after the IMF finished its yearly review of the Canadian economy this week. Its report is expected to highlight escalating housing prices in both Toronto and Vancouver as a concern at the same time noting the government’s most recent moves to cap record levels of household debt with new, more stringent mortgage rules.
While that appears to have had some effect in terms of discouraging Canadians from taking on more debt around refinancing, average existing debt levels continue to hover just over 150 per cent of disposable income.
The IMF suggests that the federal government may eventually need to raise mortgage down payment requirements or lower debt service-to-income ratios in order to keep more vulnerable Canadians from further borrowing.
While most brokers want to see the government focus on unsecured debt and the underwriting policies of the banks, others are echoing the IMF’s sentiments. They suggest the government would have little choice but to revisit mortgage rules if consumer debt levels creep back.
“If debt levels start increasing rapidly again, more changes to mortgage rules are inevitable,” David Larock, a mortgage agent with TMG The Mortgage Group in Toronto, told MortgageBrokerNews.ca recently. “The Bank of Canada won’t raise rates to slow borrowing if the broader economy still needs the stimulus – that could trigger a recession at the worst possible time. Instead, Finance Minister Flaherty will tighten mortgage rules to reduce the risk of a credit bubble. If that happens, though, my hope is that these changes will be phased in over time.”