Canada : New mortgage rules proposed to reduce financial risk in housing markets

New mortgage rules have been proposed by the Canadian federal government to cooldown Canada’s booming housing market.

The new plans would mean that consumers with uninsured mortgages would have to demonstrate that they could deal with a 2% increase in their mortgage rate, regardless of term. The rule would apply to both fixed-rate and variable mortgages.

Furthermore, proposals have also been put in place to ban co-lending arrangements, whereby providers work with unregulated firms to offer loans with high loan-to-value ratios. Co-lending mortgages can permit lenders to offer mortgages worth up to 90% of the value of a property. Whereas, regulated lenders are not permitted to lend more than 65% of the value of a home to borrowers with poor or no credit records.

"It has been suggested by the Office of the Superintendent of Financial Institutions that rapidly increasing house prices and high levels of household debt could cause significant loan losses if economic conditions worsen."

It has been suggested by the Office of the Superintendent of Financial Institutions (OSFI), who are imposing the new guidelines, that rapidly increasing house prices and high levels of household debt could cause significant loan losses if economic conditions worsen. Therefore, it is hoped that the guidelines may help to alleviate some of the financial debt burden with which many Canadians are faced.

 

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