The department of finance ambushed the financial services industry late Wednesday with the announcement that they are tightening mortgage rules. Just 2 weeks ago the Office of the Superintendent of Financial Institutions (OSFI) released mortgage rule changes after weeks of deliberation and industry feedback. Apparently the government didn’t like the process or the results and heavy handed a few changes of their own.
The changes announced are a reduction in the maximum amortization to 25 years from 30 years and a reduction in the maximum loan to value (LTV) to 80% from 85% for mortgage refinances. In addition to these two changes there are rumors that more changes are in the works. Clearly this is all about lowering consumer debt levels and cooling housing prices.
The timing comes on the heels of international news that other nations are taking the opposite approach. That is they are looking to stimulate borrowing and spending by lowering interest rates, promising to keep them low for extended periods or searching for alternative stimulus measures. In our increasingly global economy, Canada is in a unique position swimming against the tide in an effort to prevent a housing bubble and massive currency appreciation. The trick is in maintaining our economic recovery while preventing a housing market overshoot and rising consumer debt loads. All this, while the government’s key control switch of interest rate manipulation is off the table. Let’s hope they got it right!