Jim Flaherty announces tighter lending standards for mortgages

Finance Minister Jim Flaherty Tuesday announced tighter lending standards for mortgages, saying that while the housing market is “healthy” the moves are needed to “help prevent negative trends from developing.”

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I have also asked my mortgage consultant for his views and comments on this announcement. They are as follows…

"Qualifying shorter term and variable rate mortgages at a higher rate – already happening with most lenders in the Canadian market place. On average this will be almost a total non factor as with very rare exceptions "A lenders" in the Canadian market are already actually qualifying at a rate even higher than the suggested government qualification rate.

Refinances – decreasing the maximum "loan to value" or LTV from 95% to 90%. LTV is the amount of money that can be loaned against the value of the property, so on a $100,000 property a loan to value of 90% means you could borrow $90,000. Again, some lenders are already doing this and several more lenders due to conservative appraisal policies are already de facto allowing for lower loan amounts by valuing homes more conservatively than might actually be the case if they were sold in the open market.

Rental properties – allowing purchases with 10% down has now been changed to 20% down. This is likely the one to have the most impact and I am split. Again, politically speaking it seems to make sense as it looks like it's targeting "rich land owners" and/or "speculators". However, my experience is people who are making use of the 10% down option on a rental property are simply looking to build a retirement portfolio by putting some of their hard earned dollars into some real assets and they are neither particularly rich or what I would consider speculators. However, anytime the price of something is increased and in this situation it is almost being doubled it is bound to have an impact by lowering demand.

So to recap, the moves made are largely window dressing and in that sense perhaps simply the act of calling to the attention of the public the fact that the government is aware of the situation and taking steps to address it can be taken as a positive. That said, the changes are of a fairly minor nature, which isn't to say it won't impact some people, but again the vast majority will not be affected. In general I would suggest the moves are positive as it seems to strike a balance between doing too much and doing too little. Time will ultimately tell with regard to how the market will take these changes but I think we have room for cautious optimism.