We interrupt the current programming to bring you this breaking news. According to CTV news the Federal government is making significant changes to some controversial lending protocols in Canada. The main change is the elimination of the 40 year amortization, the second amounts to the elimination of O% down mortgages being eligible for mortgage insurance.
To be completely honest this has sideswiped me somewhat as I was not even aware these changes were being contemplated. My first thought is right policy, wrong timing. My second thought is what impact will this have? Apparently, according to CTV, the impetus for this is to prevent a U.S. style melt down. If that’s their motive for these changes then Its probably too late.
I personally like the changes, I’m just a little uncertain as to the timing – why wasn’t it sooner in the year when the housing cycle was beginning its upswing of activity? The reality is the rules are the rules, and the demand will be what it is. So if fewer people (according to the rules) can buy then its good news to the rental market, but overall I suspect the impact will be reasonably minimal.
The impact of this move is also lessened by the fact in Edmonton now that housing prices have become more affordable than last year. One of the reasons the 40 year amortization period was brought in was to deal with the rapid acceleration of housing prices, and since that isn’t the case anymore it may not be needed anymore.
Across Canada though the changes should have a definite impact. The elimination of the 0% down insured mortgage will affect the lower tier of the market and then the move up market. I’m not sure of the benefit of this if the buyer can meet the TDSR (Total Debt Service Ratio) required and can afford the payments what does 5%. I’m no actuary but I’d bet the percentage of defaults of 0% down to 5% is minimal at best.
This move will stir some activity prior to its implementation deadline (October 15) as some buyers who are currently in the market act to take advantage of their situation, but I would have to think the pent up activity caused by this would beminimal. There may be a more significant flurry of refinancing activity as people who are carrying a number of unitended long term hold investment properties act to lower their payments as much as possible to make riding the market out a little more palaple.
Maybe this is a new trend for this regime though just like the changes in income trusts. No discussion just action. I’m not sure what’s worse – bad rules or the thought that the rule will constantly change without discussion and without warning. We’ll have some more thoughts about this over the next few days.
