Canada to curb property speculation

Published 18th Feb 2010

Canada's Government has taken steps to tighten mortgage lending rules in the country as historic low rates are raising fears of a potential housing bubble...

Finance Minister Jim Flaherty announced that he is to tighten the mortgage rules in a bid to curb speculation in the property market in order to prevent a property bubble.

Whilst there is currently no sign of a bubble, the Government is acting now before one does occur. "We're looking ahead and taking action now before there is a problem," Mr Flaherty said.

From April 19th when the new rules come in, in order to qualify for a government-insured mortgage, borrowers will have to meet the standards for a five-year fixed-rate mortgage, which is a rise from the current standard for three years.

In an attempt to curb property speculators, many of whom have been snapping up numerous apartments and not living in them, Mr Flaherty said that Canadians want to purchase a property where they will not be living, they will have to come up with a 20 per cent deposit.

Economists warned, however, that it will be difficult for lenders to determine on which side of the line buyers fall.

To discourage homeowners from taking on too much debt and possibly facing foreclosure at some point down the line, the new restrictions also set a much tighter limit on how much money people can borrow against their houses.

Instead of being able to borrow 95 per cent of the value of their property, the limit will now be 90 per cent.

There are also concerns that the new rules may have a negative impact on first time buyers struggling to get onto the Canadian property ladder.

In practical terms, it means that on the average $337,000 home, a homeowner will need to have the financial means to absorb an additional $2,500 in mortgage costs a year, according to TD Bank - this additional cost is present as interest rates, which are currently at a historic low, are set to increase.

Canada's housing recovery has been so speedy that some are worried. The country has avoided foreclosures and banking crises and Canada's central bank has vowed to keep interest rates at a historic low of 0.25 per cent until the middle of the year.

But, following that, most economists expect the Bank of Canada to increase rates in the summer.

Source: ' TMC '

View All Latest News