Mortgage rules tightened

OTTAWA — Canada’s red hot housing market may get a little hotter following Tuesday’s announcement by the federal government that new mortgage rule changes are coming to discourage cash-light buyers and speculators.

OTTAWA — Canada’s red hot housing market may get a little hotter following Tuesday’s announcement by the federal government that new mortgage rule changes are coming to discourage cash-light buyers and speculators.

Market analysts say Canadians who were just managing to qualify for government-insured mortgages may rush into the market before stricter rules take effect April 19.

Prospective homebuyers may also jump into the market this spring to beat coming interest rate hikes and, in Ontario and B.C., the introduction of the harmonized sales tax on July 1 that could add $1,500 to the cost of buying a home.

“The whole spring housing market is going to be on fire,” predicted Derek Holt, vice-president of economics with Scotia Capital.

The other end of the coin is that the market could slow more than expected toward the end of the year.

On Tuesday, Finance Minister Jim Flaherty acceded to months of pressure to get ahead of the curve and tighten rules to discourage marginal, cash-strapped buyers and speculators. All borrowers will need to meet stiffer criteria to take out mortgages, he said.

In order to qualify for an insured mortgage, borrowers will have to meet the standards for a five-year fixed-rate mortgage even if the interest they are paying is less.

The government will also limit the amount Canadians can borrow on their homes from the current 95 per cent of the value to 90 per cent.

And to discourage speculation, many real estate investors who purchase properties for rental purposes will have to come up with a 20 per cent down payment, instead of the current five.

Flaherty said he has been told anecdotally of a tendency among speculators to purchase multiple condominium units and not live in any of them, which he says drives up prices overall.

The minister insisted there is no housing bubble in Canada as yet, but added that with interest rates set to rise as early as this summer, he wants to ensure Canadians don’t take on too much debt.

A new report suggests the danger is real.

The Vanier Institute of the Family reported Tuesday that average household debts loads climbed 5.7 per cent to $96,100 in 2009.

The institute estimates some 1.3 million households could be vulnerable to a dangerously high debt service load by the end of 2011.