The recent changes in the federal rule of tightening the mortgage lending, make it difficult for the first time buyers in Canada to qualify for a mortgage. However, the brokers opine that the policy-makers are required to address the needs of their industry. According to Will Dunning, the Canadian Association of Accredited Mortgage Professionals chief economist, the sales of existing homes dropped in Canada due to the tighter mortgage rules implemented in July.
In Vancouver, there is an alarming drop in sales activity due to the effect of market slow down along with stringent mortgage rule. Dunning commented that the real estate market seems to remain unsettled in future as well.
The home value has dropped by 14.6% from last year and the number of sale dropped by 10%.
According to the survey of CAAMP, the first time home buyers are bearing the toll of the tight mortgage rules. The changes in the rule has limited the maximum amortization period for an insured mortgage to 25 years. If the mortgage is 80% of the home value, then it is considered as high-ratio mortgage and required to have insurance.
Association president and CEO Jim Murphy stated that the new changes in the rule are adversely affecting the slowdown market. Well, the brokers are requesting the policy-makers to consider the needs of this key sector of the real estate market.
Dunning forces on reinstating 30-year amortizations as the market has been steady before the changes. Before the change in the rule, there has been a constant balance in the sales rate as well as in the price in the Canadian market. He emphasized on the fact that the new changes in the rule is not required to slow the housing market.
The chief economist thinks that the change in the policy of the housing market has exposed the average consumers to a greater risk. The new policy adversely affects the housing market along with the job formation and the economy as a whole.
Although, finance Minister Jim Flaherty states that the new rules are intended to stabilize the overpriced real estate market in certain provinces in Canada. He also added that the stringent mortgage rule lowers the risk of the home buyers to incur debts.
Canadian consumer debt is incessantly rising as per the latest report of the Bank of Canada. Governor Mark Carney alerts the consumers, if they default on mortgage payment once the interest mounts, it may adversely affect the economy.
Finance minister has lowered the maximum amortization for Canadian mortgages in the recent years. Of late, the maximum for an insured mortgage slashed from 30 years to 25 years. The maximum amortization period is decreased to 35 years from 40 and then to 30 years from 35.
The housing resale activity in the month of August-October is cut down to 8% compared to last year, due to the recent change in the rule. Well, under new 25-year amortization rule, the high-ratio homebuyers may not qualify now.