Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Canadian policy-makers are trying to stabilize a housing market that's on the edge. But what I see coming from Ottawa could tip it right over the edge.

All-time-low interest rates have juiced Toronto and Vancouver home prices to unprecedented heights. That has much of the country worried, and regulators are determined to do something about it.

On Monday, the Finance Department responded yet again. It unleashed two rather subtle but potent new mortgage rules aimed at countering "years of low interest rates." These rules seem to be all part of a master plan.

Story continues below advertisement

If mortgage rates were just one percentage point higher, affordability would drop 9 per cent, demand would slow and these concerns would alleviate. But the feeble economy doesn't justify higher rates, from either the Bank of Canada or the bond market. So that leaves everyone looking to policy-makers for answers.

I've heard from a couple of lender executives who attended a Finance Department meeting this summer where officials indicated an intent to raise the effective level of mortgage rates without hiking other economically sensitive rates. Policy-makers have been orchestrating this stealth rate hike through a combination of higher capital requirements, securitization limits, default insurance restrictions and "lender-risk sharing" on insured mortgages.

All of these things make it more expensive for lenders to lend, and no lender wants to eat these costs. Instead, they'll pass them on to borrowers through higher rates. By the summer of 2017, there are views in the mortgage industry that policy-makers could push mortgage rates more than 0.50 percentage points.

Monday's mortgage rule tightening was an extension of these veiled rate hikes, with two policies destined to boost mortgage costs.

The first one affects the "qualification rate" used to assess borrowers. Starting Oct. 17, folks getting a five-year fixed mortgage will have to prove they can afford a payment based on the Bank of Canada's posted rate, currently 4.64 per cent. That's a mighty 2.25 percentage points above today's average qualification rate.

Consider that someone with 10 per cent down, $50,000 of income and no debt can afford a $300,000 home today. Once this new qualification rate takes effect in two weeks, that drops to $246,000, a stunning 18-per-cent plunge in affordability. Many will now be forced into smaller mortgages, assuming they can't find a co-signor or bigger down payment. .

With over 50 per cent of homeowners selecting five-year fixed terms, according to Mortgage Professionals Canada, this rule hits a wide swath of borrowers. In fact, Ottawa's action this time around could weigh on home values more than any of the government's past amortization reductions or down-payment increases.

Story continues below advertisement

Refinancers are another group being targeted – specifically those trying to consolidate as much debt as possible into their mortgage. They'll soon need more income to get approved for the very same loan amount. Otherwise, the higher qualification rate will push their debt ratios above lender limits.

The Finance Department's second rule is just as significant. Effective Nov. 30, lenders can no longer insure refinances, amortizations over 25 years, non-owner-occupied rental properties or mortgages over $1-million. That's a problem because insurance is required for lenders who sell mortgages to investors. These lenders and their mortgage-broker armies typically undercut banks, saving consumers billions in interest every year. Banks don't need this insurance, however, so with their competitors disadvantaged, it's an open invitation for banks to increase rates.

Data on the potential impact of these rules are sparse, but preliminary official estimates are that roughly one in 12 new home purchases could be impacted. I'd guess the true number is at least double that, based on past borrower affordability polls.

Robert McLister is a mortgage planner at intelliMortgage and founder of RateSpy.com. You can follow him on Twitter at @RateSpy.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies