The federal government’s plan to reign in Canadians’ borrowing habits by tightening up mortgage regulations misses the mark, according to the Mortgage Brokers Association of B.C. (MBABC).
“Our opinion is that the government is actually targeting mortgages specifically as the cause of the debt load, where other consumer debt is really the cause,” said MBABC president Joanne Vickery.
Yesterday, federal finance minister Jim Flaherty announced regulatory changes to government-backed insured mortgages, including reducing the maximum amortization period to 30 years from 35 years. (See “Ottawa tightens mortgage rules to curb household debt ”¬ – BIV Business Today, January16.)
Vickery said the regulatory changes will target first-time home buyers who need high-ratio financing.
“All of a sudden, your first-time homebuyers again are being targeted,” she said. “And they’re not the problem with consumer debt.”
In the Vancouver area, she said, first-time buyers are likely to be buying in the suburbs, where she said a person who previously qualified for a $400,000 mortgage over 35 years – assuming a 5% down payment – will now only qualify for $375,000.
Not only will the new rules curtail the kinds of homes first-time buyers can purchase, she said, but they’ll also curtain Canadians’ ability to reduce their interest rates by consolidating household debt into a mortgage.
“The refinancing of the mortgage is actually a solution to [household debt] to a certain level,” she said, noting individuals can drive down the interest rates they’re paying on credit cards from 18% to approximately 3% by consolidating that debt into a mortgage.
But Vickery emphasized any savings gained by this approach should be used to pay down the mortgage or contribute to RRSPs and other savings vehicles.
Vickery also noted that, even before the government’s new changes, mortgages were given out far less readily than consumer debt, and subject to far more rigorous standards.
“When a lender approves a mortgage, we have to qualify them based on their income and their ability to service that debt and ratios,” she said. “We have to prove that income – are they actually earning that income and how long is it for?”
In contrast, she said, many credit card or “buy now pay later” plans hinge only on a credit score.
“If [applicants have] got a good credit score and they sign giving permission to do a credit score, [these companies] don’t even verify their incomes or their ability to service the debt and [the applicants] get the financing,” she said.