10/30 Mortgage Rules

Jim Flaherty’s remarks about tightening mortgage requirements ignited a slew of public opinion this week.

For those who missed it, Flaherty speculated that the government may increase minimum down payments (from 5% to perhaps 10%) and reduce maximum amortizations to 30 years or less.

Here’s what some people had to say about it:

• BMO economist, Doug Porter:
  • "The fact that the finance minister is talking about it suggests to me that the government has been seriously looking at ways to cool the housing market without necessarily resorting to interest-rate increases." (via Yourhome.ca)
• Two-thirds of CEO’s polled by BDO agree that the government should “urge mortgage lenders to tighten up on their terms, requiring significantly higher down payments.”
• The MBABC says:
  • “…The market is going to self correct…because the affordability [of housing] isn't there anymore, and really, the economic news isn't that strong.” - MBABC president Joe Santos
  • 10/30 mortgages would “be detrimental to BC’s real estate market…First time buyers drive the housing market. Raising interest rates and reducing amortization periods will severely impact affordability for this important demographic group.”
  • Down payment and amortization tightening would “potentially cause home values to decrease, penalizing people who have bought into the market over the last two or three years with a 5% down payment.”
• Some seniors advocates suggest that if 10/30 rules end up hurting home prices, seniors could suffer. Many older Canadians lack sufficient registered retirement assets, making home equity critical to their ability to generate income.
• Central 1 Credit Union economist, Helmut Pastrick, says:
  • 10/30 mortgages “Would have quite a negative impact.”
  • Today’s record-low rates will soon increase and that itself will have a dampening effect on real estate.
• Home builders in BC and Ontario are concerned that tighter mortgage rules would combine with higher rates and the July 1, 2010 HST to kill new housing demand and construction.
• From CIBC (via the Globe):
  • “We support the minister in reviewing this now to ensure consumers are not taking on more debt than they can handle in a more normalized rate environment." - Sonia Baxendale, CIBC’s head of Canadian lending operations
  • "My message to the government is to be careful not to overshoot," he said. "You do not kill a fly with a hammer. Housing is a very important part of the economic recovery, which is still very fragile. You do not want to ruin that market." – CIBC economist, Ben Tal
• Real estate critic, Garth Turner, says:
  • Canada has a real estate bubble and it’s “a mother of a gasbag.”
  • As a result, action must be taken to curb borrowing. Any industry participant who argues against “an end to government subsidies for buyers without money, or more prudent lending limits, is making an argument against their own industry and future.”
• Toronto mortgage broker, Marcus Tzaferis:
  • If 10/30 rules take effect, "25% of buyers--these people who are buying with 5% down and those who are buying with 35-year amortizations, won't be able to purchase anymore." (CBC Video)
• TD economist, Don Drummond:
  • "We probably won't see the housing market cool off for the next several months because people will be rushing out" to buy before mortgage rules change. (via Yourhome.ca)
• If 10/30 rules came into effect, it would have an immediate impact, says Invis’s Gary Siegle:
  • “It's just a question of mathematics that there will be people who qualify today who wouldn't be able to qualify if those changes come into play," he says.
  • "It would be really nice if they (are) going to make that move, (that) it would be 7 1/2 instead of 10 (per cent)…a kind of middle-of-the-road solution” so that the marketplace isn’t impacted so dramatically.

All this said, Flaherty says a change in mortgage rules isn’t a given. He states: “There would have to be clear evidence of an asset bubble in residential real estate in Canada, which there is not right now.”