With some people thinking that the prime rate may be heading upwards in the latter part of this year, the government has taken some initiative to try to control the debt that some people tend to take on when it comes to buying properties.
OTTAWA — Canada’s top economists and opposition MPs are welcoming new moves by the feds to rein in property speculators and to make it harder for some to buy houses.
“We want to have the most prudent guidelines and the most prudent regulations we can,” said Warren Jestin, chief economist for Scotiabank. “The steps taken by the government will tend to reduce the risk of the market overheating and going into a reversal.”
The changes announced by Finance Minister Jim Flaherty are threefold:
• Canadians buying a house with less than 20% down must qualify based on a five-year fixed rate, regardless of what mortgage they get.
• People refinancing their mortgages will be able withdraw a maximum of 90% of the value of their house, down from 95%.
• Property speculators who buy places but don’t live in them, will have to put a minimum of 20% down, up from 5%.
The new rules come as concerns emerged a housing bubble may be forming, which could pop, wounding an already weak economy.
Flaherty said this worry is premature, but he was concerned by people taking “excessive amounts of cash” out of their homes and felt it was time to crack down on speculators.
“Early policy action can help prevent negative trends from developing,” Flaherty said. “Our government is acting to help prevent Canadian households from getting over extended and to prevent some lenders from facilitating it.”
Don Drummond, chief economist for the Toronto Dominion Bank, said the changes were “good” and he wished he thought of the property speculation angle first.
“All of the changes are minor but they’re all designed to help that 5% of the market that tends to get into trouble,” Drummond said.
The move was welcomed by the Canadian Real Estate Association, which said it was happy the feds decided to make these changes instead of others.
“We’re pleased the federal government didn’t increase the minimum down payment or decrease the amortization period,” said Gregory Klump, chief economist for the CREA. “The impact of those could be deep and damaging.”
Liberal finance critic John McCallum said he broadly welcomed the changes but warned they could discourage landlords from buying, resulting in fewer affordable homes for rent.
NDP finance critic Thomas Mulcair said, “Making sure that potential home buyers can manage their debts is critical … and frankly I welcome Flaherty’s belated attention to this problem.”
Mulcair, however, wants restrictions put on how much banks can charge customers on mortgages to prevent variable mortgage rates from rising too fast.
peter.zimonjic@sunmedia.ca
