Finance Minister Jim Flaherty announced this morning new mortgage rules for Canadians. The rules are designed to slow the accumulation of consumer debt levels in the housing market – and it’s anticipated that they’ll make buying a home additionally difficult for Canadians with limited savings.
The changes, which will take effect on July 9, include a decrease in the maximum amortization period for government backed mortgages, from 30 to 25 years. The amount that Canadians can borrow against their home equity also took a hit, now reduced from 85 per cent to 80 per cent. Flaherty also confirmed new limits imposed on the availability of government backed mortgages, accessible now only to homes with a purchase price below $1 million. The maximum gross-debt ratio will be fixed at 39 per cent, with maximum total debt service ratio at 44 per cent.
The announcement, the fourth in a series of belt tightening moves since 2008, is prompted by growing concern over consumer debt levels and inflated house prices particularly in the condo market in major cities such as Toronto and Vancouver – and what could happen should the historically low mortgage rates Canadians have been experiencing should rise. As the accumulation household debt reached an astounding 152% of income in last year’s fourth quarter, the Bank of Canada is wary of a repeat of the 2008-09 slump, estimating that the number of households in arrears could triple to 1.3% should the unemployment rate rise by 3 per cent.
Stay tuned for more on this story and what it will mean for your mortgage.