Sources say the measures will discourage reckless real estate speculation, such as borrowing heavily for an investment property that is not the investor's primary residence. Flaherty is also set to deter households from taking on more mortgage debt than they can afford to repay when interest rates rise, as they are expected to do later this year.
The finance minister is also expected to discourage people from raising cash by refinancing their homes with larger mortgages — again because they may not be able to make the payments at higher interest rates.
The Canadian Press reports that Flaherty will implement a debt affordability or income test that applicants must pass to qualify for mortgages insured by the Canada Mortgage and Housing Corp.Read more: http://www.cbc.ca/money/story/2010/02/15/flaherty-mortgage-rules.html#ixzz0ffwmWG2F
This isn't much of a surprise and a step in the right direction. There were hints from BoC personnel going back several months. In fact this blog called it already. To quote:
"What will 2010 bring for BC housing?
- There are musings on the wind of tightening mortgage requirements which will have some impact on demand."
It appears they will be changing the qualification standards to use a higher assumed interest rate, with the LTV (downpayment) requirements left unchanged for now.
This change is late. Most who have wanted to buy have had ample opportunity and ability to do so in the past year. Increasing qualifying interest rates is like closing the barn door after most of the horses have left.
I remain unconvinced interest rates will be markedly higher in a year's time.
Agreed, the interest rate issue isn't a big one although from what I hear, several of the non-bank lenders use pretty lax interest rate assumptions so it will certainly keep the extremely marginal buyers out of the market.
The downpayment requirement for 'investor-owned' purchases seems like a no-brainer to me. Why CMHC even insures non-owner-occupied housing mortgages is beyond me and beyond their mandate.
The 90% refinance limit is to protect the irresponsible from themselves and to protect the CMHC from losses when house prices fall and foreclosures begin to rise. This change also seems like a basic risk management measure.
These sound good but suffer from a little vagueness. Will the really have any teeth? If they truly make sure that people will only qualify with current interest rate +2% will that be very different from actually raising rates 2%. If it cuts out first time home buyers it will cut the legs off the market.
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