Lending tightening in Canada?

Lender opposes clampdown to rein in mortgage borrowing
February 12, 2010


Gavin's Review:

I believe they will just increase credit ratings necessary and shorten amortization. I feel increasing the min. downpayment would contract the market too much, and that they will be unwilling to do so. Keep in mind that we have a very small sub prime market, and that all owners have equity in the property and proper credit and employment, versus the US market of past.


Dana Flavelle
BUSINESS REPORTER

In a bid to allay fears about a potential U.S.-style housing bubble, Ottawa is considering proposals that would make it tougher for Canadians to borrow to buy a home.

The proposals include raising the minimum down payment and shortening the maximum amortization period (the time it takes to pay off the entire loan), according to the country's sixth-largest mortgage lender.

There have been talks between various banks, the federal finance department and Canada Mortgage and House Corp., said Peter Aceto, president and chief executive of ING Direct Canada.

"There are some concerns because of what's going on with real estate, in terms of rapidly increased property values and the theory they're being fuelled by very low interest rates, that a bubble is being created similar to what happened in the U.S.," Aceto said in an interview Thursday.

Federal Finance Minister Jim Flaherty "is actively monitoring the housing market," a spokesperson said in a statement. "There is no clear evidence now of a housing bubble in Canada."

Aceto said ING opposes new mortgage limits because it would cut some creditworthy people out of the market.

"Why should Minister Flaherty be the one to change the rules? Why can't lenders just act responsibly? Speak with their customers and help them make decisions in the best interests of them in the longer term."

But TD Canada Trust president and CEO Tim Hockey said although evidence of a housing bubble is in doubt, Canadians are becoming more indebted at a faster-than-normal pace due to low interest rates.

"It's worth exploring ways to moderate that growth by putting policies in place now as a way of protecting consumers from the effects of anticipated higher rates," Hockey said.

The Canadian Bankers Association said in a statement that it "has not been lobbying the government about proposals that would restrict mortgage lending by raising the down payment and lowering the amortization period."

In the Greater Toronto Area, where the average price of an existing home in January hit $409,058, up 19 per cent compared with a year ago, a minimum 5 per cent down payment would cost an average of $20,452. If the minimum were raised to 10 per cent, the average downpayment would double to $40,905.

Shortening the amortization from the current 35-year maximum to 30 years would boost the average monthly payment by $149 to $1,714.08, assuming a five-year open variable mortgage at 3.05 per cent interest.

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