Various mortgage rule changes have been made with the intent of cooling the housing market, but one broker believes they have done just the opposite.
“A lot of the government’s change in regulations have actually had the opposite effect; what they’ve done is they’ve taken away the ability for homebuyers to move up, so the excess inventory that would dampen prices isn’t there,” James Smythe of Dominion Lending Centres
Central told MortgageBrokerNews.ca. “If demand is down and supply is down prices are either going to stay stable or increase.”
Since 2008, the Canadian government has made a number of mortgage rule changes with the intention of creating more prudent underwriting practices.
These changes have included reducing the maximum amortization period to 25 years, requiring a down payment of at least five per cent, and dropping the maximum LTV for a refinance from 95 per cent to 80 per cent.
Following those, OSFI implemented its B-20 guidelines, which included changing the limit homeowners could borrow against their properties from 80 per cent of the home’s value to 65 per cent.
And while the measures were made to rein in the market, Smythe believes they have actually had the opposite effect.
“They have resulted in an increase in housing prices because there is less inventory,” he said. “I think they’ve actually increased risk because there is a smaller real estate pool.”
Smythe uses a fish tank as an analogy.
“If you have a larger fish tank it is better equipped to handle any fluctuations (in water content),” he said. “But a smaller tank has less room to handle those changes.”