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Canada: How Disruptive Are The New Mortgage Rules?

ByThe National Bank of Canada
Published 06/24/2012, 05:12 AM
Updated 05/14/2017, 06:45 AM

On June 20, the Canadian government announced further adjustments to the rules for government-backed insured mortgages. The most important measure is unquestionably the reduction of the maximum amortization period from 30 years to 25 years. This decision will not go unnoticed given that according to CAAMP, 40% recent home buyers opted for an amortization period in excess of 25 years. By our calculations, the new measure is akin to an 83 basis points increase in the mortgage rate or a 10% increase in monthly mortgage payments. This translates in a $171 monthly increase at the national level. Our affordability indicator, which takes into account average household disposable income, has suddenly become the least favourable since November 2008.

As Friday’s Hot Chart shows, it important to keep in mind that the negative impact notwithstanding, the new mortgage rules have not pushed our affordability index to a level that generally coincides with a sharp correction in home prices. At the end of the day, a deteriorating global economic backdrop and its potential negative feedback loop on our labour markets threatens the Canadian housing market more than the new sensible macroprudential measures introduced by Mr. Flaherty.
Canada How Disruptive Are The New Mortgage Rules

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