Wednesday, 20 March 2013

Have tougher mortgage rules created stronger borrowers?

In their latest public statements, the Bank of Canada has been much softer with their language when it comes to Canadian debt levels, signalling that they are less concerned than they once were about the possibility of a U.S. style housing crash. In this video from the Globe and Mail, Tara Perkins talks to Andrew Charles, CEO of Canada Guaranty (one of Canada's major mortgage insurers) and Benjamin Tal, Deputy Chief Economist for CIBC, about the likelihood of tougher mortgage regulations creating a culture of stronger and more educated Canadian borrowers.

The stricter mortgage regulations introduced in the summer of 2012 included decreasing the maximum amortization period for insured mortgages to 25 years from the previous 30 year maximum, limiting refinancing loans to 80% of the value of a home, and limiting the maximum gross and total debt service ratios.  These new regulations, Charles suggests, have caused many Canadian first-time buyers to "sit on the sidelines", thus resulting in better credit and more qualified, stronger borrowers. He went on to say that the majority of borrowers are opting for a 5 year term, giving them 5 years of certainty when it comes to mortgage payments.

The trio also take some time to discuss mortgage rates. Those who view the mortgage market in a negative light tend to believe that low mortgage rates will spur a wave of unnecessary borrowing - Tal disagrees. He goes on to say that when rates eventually do rise, it will not be a dramatic increase and we are unlikely to see a wave of delinquency like the U.S. did.

Click here to watch the full video from the Globe and Mail.

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