RBC is among the first to suggest the government might want to make those new rules temporary and not permanent, arguing they – coupled with rising interest rates – could scuttle the market.
“It’s hard to argue that they shouldn’t be doing something to slow this down,” David McKay, head of RBC’s domestic banking told reporters over the weekend. “But what is the longer term implication of all this in a higher rate environment? And do we pull back too tightly on the reins?”
Moreover, McKay is suggesting the government should consider making those new rules – amortization capped at 25 years for insured mortgages and LTV at 80 per cent – a short-term intervention. Otherwise, they could, in fact, damage the economy in the long run if kept in place beyond that, he said.
“This is not like turning a Ferrari,” the RBC exec said. “This is like a big ship. And it takes a while to turn. And sometimes if you over steer, you can’t re-steer the other way.”
While brokers have had a mixed reaction to the rule changes, the majority have argued that those amendments in consideration of others made as recently as last year cannot be successfully evaluated in the current low-interest rate environment.
This past March, a broker channel lender urged the government to adopt the same kind of analytical caution RBC is calling for.
“What we’ve been experiencing is an artificial market because of the low interest rates and irrational pricing,” Jason Kay, Merix’s VP of sales and corporate development, told MortgageBrokerNews.ca. “What the government needs to do is wait for the return of a more normalized rate environment to assess the impact of the changes already made, rather than introduce additional changes."
That didn’t happen, although McKay and brokers across the country are hoping the government will even consider reversing the latest changes when normal interest rates return to the market.
“Would we consider going back to a 30-year amortization when we are able to raise rates, to alleviate the strain on the consumer wallet, and balance growth in the economy?” McKay said. “That is obviously a long-term worry.”