A study by Canadian Association of Accredited Mortgage Professionals (CAAMP) which surveyed its mortgage broker members who issued more than 40K home mortgages during 2009 totaling $10B found that Canadians are borrowing less to purchase their new homes rather than more. The study was done after the Finance Minister, Jim Flaherty, and the Bank of Canada have issued statements in the past month outlining their concerns that home owners may be taking advantage of low mortgage rates and over leveraging themselves.
Some of the studies key findings include the following:
- 86% of new home buyers took out fixed rate mortgages chose fixed rate mortgages
- This trend slowed down towards the end of the year as discounted variable mortgage rates to prime came back into the market
- Borrowers who took out a fixed mortgage, opted for longer terms:
- less than 5% took term of two years or less20% took three year terms5% four years
70% five years or more
One of the biggest surprises is that most of the people who took out their first mortgage actually borrowed a lower amount then they could have. This was found because the GDS or Gross Debt Service ratios were below the maximums. The GDS is the percentage of the borrower’s income that is needed to cover all the associated costs that go along with owning a home such as mortgage re-payments, taxes, heating, condo fees, etc. This result goes directly against the government and federal bank‘s beliefs that Canadians are taking on too much debt and causing a potential housing bubble.
CAAMP Chief Economist said only a small number of new home buyers are stretching themselves and “this data set is primarily focused on first-time home buyers who are considered to be most at risk. Each year, about 2.5 to 3% of Canadian households make a first-time home purchase. Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada. For those who borrowed in prior years, risks are even lower.”