Lenders should start qualifying borrowers at posted rates to minimize risk of a housing bubble, said Mortgage Alliance broker Mark Herman in response to Finance Minister Jim Flaherty's recent suggestion of upping minimum down payments and decreasing amortization periods.
"Qualifying using posted rates of 5.49 per cent would correct two trouble areas with one action and keep the fragile economy moving in a positive direction," said Herman. "Firstly, the higher rate would reduce maximum dollar amount buyers could qualify for. Also, when rates return to their long term average of about 6.5 per cent they will be able to swallow that one per cent increase and not look at rates increasing by three times."
Herman added that 92 per cent of his clients use the five per cent down payment option, so raising that number would "slam the brakes" on a real estate recovery and shut out many first-time buyers.
Flaherty told CTV that if he continued to see evidence that there is excessive demand in the housing market he may have to take steps to minimize the risks of borrowers overextending themselves.