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.
