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Tighter Mortgage Rules Threaten Economy’s Recovery, Brokers Warn

Great Article from National Post... 

Garry Marr
Monday, Nov. 19, 2012
The Canadian Association of Accredited Mortgage Professionals says since new rules went into effect in July, 2012, resale housing activity is 8% lower between August and October than a year earlier. Reuters
New borrowing rules have hit homeowners so hard that it could undermine any economic recovery in Canada, says a new study from the country’s mortgage brokers.
The Canadian Association of Accredited Mortgage Professionals says since new rules went into effect in July, 2012, resale housing activity is 8% lower between August and October than a year earlier.
Among the changes instituted by the government was a lowering of allowable amortization from 30 years to 25 years for consumers borrowing with mortgage default insurance which is backed by the federal government. A longer amortization allows consumers to lower their monthly payment and qualify for a larger loan at the expense of paying more interest over their mortgage period.
My concern is that a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole
CAAMP says 17% of the high ratio mortgages funded in 2010 would not qualify today, including 11% of prospective high ratio homebuyers who wouldn’t qualify under the new 25-year amortization rule.
“This smaller number of first time buyers is already impacting the resale market, which in turn threatens to dampen economic activity more broadly,” said the group, in a release.
Jim Murphy, chief executive of CAAMP said his group’s survey of 2,000 Canadians shows the “vast majority” of mortgage holders are acting responsibly with their debt. “Our concern today is the number of growing first time buyers who are now unable to get a mortgage. We worry that this is having a dampening effect on what was an already cooling market and we hope policy makers will give some thought to addressing the needs of this key sector of the market,” he said.
Will Dunning, chief economist for the group, said the downturn in the resale market could be an indicator of what’s next for the market. “Since the government tightened mortgage accessibility for the fourth time this past July we’ve seen a drop in resale activity that I think foreshadows an overall decline in the housing market. My concern is that a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole,” he said.
CAAMP said the impact of first-time buyers can be felt throughout the market as move-up activity is curtailed because those potential buyers find it more difficult to sell their entry level homes.
The survey found it doesn’t matter whether consumers take a 20, 30 or 40-year amortization — something available until three years ago — they end up paying off their mortgage in two-thirds of the time originally intended. Other findings show one-third of borrowers made additional or accelerated payments on their mortgage while 87% of homeowners have at least 25% equity in their homes.
Lower rates have been good for Canadians too. Of the respondents who renewed in the last year, 61% saw a reduction in their interest rate.

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