Steps tabled to temper big mortgages

OTTAWA— The federal government may want to consider targeted steps to “lean against” the shift toward significantly bigger mortgages, a new report by the C.D. Howe Institute suggests.

But it cautioned against any broad measures such as raising the minimum down payment for all borrowers.

The report said there are several pockets of risk in the housing market, including risk faced by low-income Canadians, younger Canadians and buyers in some of the hottest markets.

“Household mortgage debt has risen dramatically and traditional economy-wide averages understate the degree of financial risk for those that carried mortgages because they typically divide the value of mortgages across the income of households with and without mortgages,” report-co-author Craig Alexander said Wednesday.

Alexander and his co-author, Paul Jacobson, suggested the steps that could be considered included raising required credit scores, capping total debt-service ratios at lower levels, increasing qualifying interest rates or varying the minimum down payment by the size of the mortgage.

The report said most Canadians have been responsible in their borrowing, but low interest rates have allowed a significant minority to take on considerably more debt relative to their income.

The report also said many borrowers may be vulnerable to financial shocks, with one in 10 homeowners with mortgages having less than $1,500 in financial assets to address an emergency and one in five with less than $5,000 in assets to access in a crisis.