According to a report issued by CMHC, overall mortgage activity declined by 37% in the third quarter of this year. The biggest chunk of that decrease is from mortgage refinances which decreased by 22% from the same period last year.
Mortgage refinancing rules were hit the hardest with the barrage of mortgage rule changes over the past 4 years. Four years ago you could access as much as 95% of the equity in your home to consolidate debts. Today that percentage has been reduced to just 80%. For a home worth $400,000 that’s $60,000 less money Canadians can access without having to sell their home.
Also in the news is a report from the Credit Counseling Society reporting that Canadian consumers have increased their non-mortgage debts by 53% over the past 5 years. Coincidence? I don’t think so. Changing government policy and mortgage rules will not change consumer behavior. Consumers have continued to out-spend their incomes only now they can’t use their home equity to clear the slate.
The result will be an increase in consumer proposals and in home sales for liquidation purposes. Many will argue that the mortgage rule changes were prudent and that these consumers brought this fate upon themselves. While no one can argue the self-infliction, it’s wrong to change the rules in the middle of the game.
Four years is a short time to implement dramatic mortgage rule changes resulting in the inability to access the equity in our own homes. While the government’s intentions were good, there will undoubtedly be dramatic side effects. We can expect to see increases in consumer bankruptcies and greater losses to unsecured creditors which will surely result in higher credit card interest rates and fees for us all.