Industry not surprised by Flaherty's mortgage rule changes

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Federal Finance Minister Jim Flaherty announced three new rule changes connected to government-backed insured mortgages Tuesday morning, saying the government is "taking proactive, prudent and cautious steps" to prevent a housing bubble.  

The biggest change is the requirement that all borrowers be qualified at a five-year fixed mortgage rate even if they choose a shorter-term, lower-interest product.

The government also lowered the maximum amount Canadians can withdraw in refinancing their mortgages from 95 to 90 per cent, and introduced a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased "for speculation."

George Hugh, vice-president of lending sales at ING Direct, said the rule changes won't be a big adjustment for ING because it already qualifies borrowers at three-year terms even if they're taking out a mortgage with a shorter term.

"I think it's proactive behaviour - the changes will have more impact on some lenders compared to others, but I think overall they're very good for the market," said Hugh.

Don Bayer, president of the Toronto-based independent brokerage Monster Mortgage, said he expected the rule changes to be tougher, adding he would have liked to see a more across-the-board rate for mortgage qualifications.

"Some banks have posted rates and some don't, so what they should've done is put a prescribed rate out there so that the whole industry had to follow one rate - for example if the variable rate is two per cent they have to qualify borrowers at five per cent," said Bayer, who also questioned the motive behind banks requesting the rule changes.

"What I find a little ironic is that it's the banks that wanted the government to intervene, yet it's the banks that control 90 per cent of the mortgage market - so is this being done to eliminate third parties from originating mortgages in Canada? I don't know. The majority of the banks are our customers as well, so I don't know why the banks are suddenly so concerned over this."

The rule changes are set to come into effect on April 19.


  • asp on 2010-02-17 4:17:04 AM

    I take it Bayer needs a few lessons on how a competitive market economy works. The big banks want a level playing field. Without any government rules in place, a big bank which applied this idea on its own would lose customers to the other big banks who did not apply a voluntary rule.

  • broker on 2010-02-17 4:44:57 AM

    all the speculation is out of the market now good job Ottawa, these guys are funny.

  • Christopher on 2010-02-17 5:00:31 AM

    I have a few clients who are real estate investors, not speculators. They plan to hold onto them as a supplement to their retirement income down the road.

  • AB Broker on 2010-02-17 5:03:31 AM

    I agree with the changes. As a broker commented last week, any reputable broker has their variable clients setup on a fixed payment based on a fixed rate of around 5% anyway. Pounding down the principle and taking out any payment shock once the rates move upward.As for the new 20% down,

  • AB Broker on 2010-02-17 5:03:33 AM

    I agree with the changes. As a broker commented last week, any reputable broker has their variable clients setup on a fixed payment based on a fixed rate of around 5% anyway. Pounding down the principle and taking out any payment shock once the rates move upward.As for the new 20% down,

  • erica reid on 2010-02-17 5:06:07 AM

    finally someone has to come up with a real down payment. Will be great for the market in the long run. All this refinancing to 95 business is ridiculuous. Sounds like a good move.

  • Gloria Moon on 2010-02-17 5:29:06 AM

    5 year plan, not a bad idea, but this 20% down.. Must be just the big spenders who enjoy this. Thus rule is not for the blue collar worker, who in this mrket are finding it hard to save mooneyfor any downpayment. Then, Hey why not hit them with the HST too.. HEY !!!Way to go!!!!! Slam them, kick em while they are down...

  • @ First Time Buyer on 2010-02-17 6:03:14 AM

    20% down is only for investment properties, not for primary residences

  • erica reid on 2010-02-17 7:39:00 AM

    Don't discriminate like that - blue collar or white collar has nothing to do with how much one can save. I meet lots of broke white collars. You complain as if it is our God given right to buy a home with virtually no down payment - well the taxpayers of Canada have been footing the risk for years now and I say its about time CMHC (aka taxpayers) has thier greed for cash tied down with a bit of common sense.

  • broker on 2010-02-18 4:44:35 AM

    looks like more people will be borrowing money from mom & dad, debt is debt, we will always have people who are on the edge no matter what changes are made. If the government is so concerned about debt, speculation and being over leveraged then crack down on the banks giving anyone with a pulse a credit card to rack up debt, this is irresponsible to me as many people are in trouble with credit cards and paying 19-20% interest rates with no way out.

  • Access on 2010-02-18 4:49:51 AM

    I understand the governments conservative and proactive approach to this issue in light of the events that took place in the US and some European countries.What I am concerned about is, as a first time buyer in a city like Vancouver, these rules make it almost impossible to purchase a first home. It feels like a sentence to rent for the rest of your life. Any suggestions on how to get into the market under such strict regulations or on how to save 20% in the province of BC? Where the cost of living is the highest and the salaries the lowest.

  • Scott Henson on 2010-02-18 5:10:56 AM

    I wonder what will happen to those that have recently purchased a rental property when it comes time to renew? If market value has not increased enough to get those to the 20% equity threshold, what then?

  • Re "broker's comment" by "broker" on 2010-02-19 7:29:35 AM

    In the case of CMHC - this risk is footed by the taxpayers of Canada. In the case of credit cards this risk is taken by the bank and its shareholders. Also it is not the govenments job to tell the banks how to lend but it is the govenments job to control CMHC as CMHC is a branch of the govenment.

  • Re: "Access's comment" on 2010-02-19 7:32:17 AM

    Hi there Access,
    you need to remember that 0 and 5% down payment are forces that push the prices up!!! so without these loose limits on down payments prices will fall and the market will work itself out. And besides its not ones right to live anywhere they want to so if you can't afford it then too bad :-(

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