Fla­herty tight­ens mort­gage rules

Cape Breton Post - - FRONT PAGE -

Fi­nance Min­is­ter Jim Fla­herty tight­en­ing mort­gage rules to crack down on spec­u­la­tors and dis­cour­age home­own­ers from tak­ing on too much debt.

TORONTO (CP) — First-time home buyer Hibo Ali has been looking for her dream condo in down­town Toronto for three years, but af­ter los­ing bid­ding wars for over-priced prop­er­ties, she says she’s re­al­is­tic about what she can af­ford and wel­comes new mort­gage re­quire­ments that could weed out less level-headed com­peti­tors.

Ali, a 31-year-old ac­count man­ager in dig­i­tal me­dia, said she be­gan looking in De­cem­ber 2007, but be­came dis­cour­aged by the qual­ity of the tiny one-bed­room con­dos that were in her price range.

“As any new buyer, what I thought I could af­ford and what my money could ac­tu­ally get me were two dif­fer­ent things.”

Since she re­turned to the mar­ket in 2008, she’s seen the value of some of those units soar by as much as $40,000, and blames stiff com­pe­ti­tion for driv­ing their val­ues up.

In the past two weeks, she’s bid on three places and lost all of them, com­ing fifth among 17 peo­ple in one case.

Fi­nance Min­is­ter Jim Fla­herty an­nounced new mort­gage qual­i­fi­ca­tion rules Tues­day to dis­cour­age home­own­ers from tak­ing out mortgages on homes they might not be able to af­ford down the road. In or­der to qual­ify for an in­sured mort­gage, bor­row­ers will have to meet the stan­dards for a five-year fixed-rate mort­gage even if the in­ter­est they will ac­tu­ally pay is lower.

The mea­sures are meant to put the brakes on lend­ing to those who are not pre­pared for an in­evitable spike in in­ter­est rates, which sit at his­toric lows. Canada’s cur­rent 0.25 per cent pol­icy rate is ex­pected to in­crease this sum­mer.

For most Cana­di­ans, par­tic­u­larly first-time own­ers who don’t have a lot of cash to put down, the change that will most im­pact their home-buy­ing choices is the higher af­ford­abil­ity test used by banks to de­ter­mine credit wor­thi­ness.

And to dis­cour­age spec­u­la­tion, prospec­tive home buy­ers who want to pur­chase a prop­erty for rental pur­poses will have to come up with a 20 per cent down pay­ment, in­stead of the cur­rent five.

Gen­er­ally, banks and mort­gage bro­kers cur­rently use the three-year fixed mort­gage rate to test whether a prospec­tive home buyer can af­ford to meet pay­ments even if the ac­tual in­ter­est be­ing charged — such as in a float­ing-rate mort­gage — is sig­nif­i­cantly less.

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