By: Sam Reiss
Well, we knew it was coming. For the third time in four years, Ottawa has reduced the maximum amortization period for mortgages, amid concerns about our too-hot housing market and rising household debt.
Finance Minister Jim Flaherty announced last week that the maximum amortization period for a government-backed loan would be reduced from 30 to 25 years; it had previously been reduced from 40 to 35 in 2008, then to 30 in 2011. The government will also lower the amount buyers can borrow against their homes to 80% of their value, down from 85%, an encouragement to retain more equity.
New mortgage qualification rules mean that buyers can spend a maximum of 39% of their gross household income on their homes, including mortgage, property taxes and utilities, and a maximum of 44% of income on housing plus servicing other debts. Plus, government-backed mortgages will be limited to homes with price tags under a million.
Banks can still offer longer amortization periods to their clients with low-ratio mortgages (more than 20% down). Reducing amortization periods will increase monthly payments but reduce total interest, which is obviously good for buyers in an eat-your-veggies sort of way. Statistics Canada recently revealed that household debt-to-income was still on the rise, up to 152% from 150.6 in the fourth quarter of 2011. The Bank of Canada calls household debt the most important domestic risk to financial security.
Flaherty said the moves were an effort to “moderate behaviour” and get buyers to reflect before jumping headlong into the high-ratio mortgage pool. Flaherty said he’d been “listening to the market” and didn’t like what he heard, particularly in Toronto’s white-hot condo market.
The changes drew quick criticism from opponents that it was merely a case of Harper backpedalling on changes Harper made in the first place, raising the amortization period to 40 years in 2006.
“This is Mr. Flaherty versus Mr. Flaherty,” according to interim Liberal leader Bob Rae. “He’s the same guy who has let it go up and is now bringing it dramatically down again.”
Benjamin Tal of CIBC World Markets said the moves were a better move than interest hikes since they “are aimed with almost surgical precision at the margins of the mortgage market.” The government said less than 5% of buyers would be affected by the changes. Tal said the impact would be enough to soften, but not derail, the housing market, and may act as a negative for house prices, especially at mid-range.
BMO Financial Group president Frank Techar called the changes “prudent, measured, responsible, timely,” and said government had “tapped the brakes” at precisely the right time.
“His actions should help ensure Canada’s housing market experiences a soft landing,” Techar said.
The changes take effect July 9. Be interesting to see what the sales spike is until then.
In its annual Green Provincial Report card, released earlier this month, sustainability proponents and media/research company Corporate Knights (whose goal is “clean capitalism”) rank Ontario first overall, with an A-. We ranked first overall in air and climate, as the only province to reach its Kyoto emission-reduction targets, but the report says we’re third (after BC and Manitoba) for energy and buildings, earning high marks for building green homes and embracing energy refits for older homes — a “clean technology leader” according to the report.
The report used 35 indicators grouped into seven categories: air and climate, water, nature, transportation, waste, energy and buildings, and innovation.
In spite of its high ranking, Ontario’s Environmental Commissioner, Gord Miller, is critical of the province’s progress in fulfilling its Green Energy and Green Economy Act (2009) promise to legislate mandatory energy audits before the sale of a home. (Also unfulfilled are a promise to introduce Energy Star standards for household appliances and the ban of inefficient incandescent bulbs.)
Residential consumption is responsible for more than a fifth of Ontario’s total, making the sector an important player in the province’s overall strategy.
Miller praised the province for making the Ontario Building code more energy-efficient and for requiring municipalities, school boards, hospitals, colleges and universities to develop energy conservation plans and report on their energy usage, but said that such as arm’s-length approach leaves “conservation disconnected from people’s day-to-day lives.
“You cannot foster a culture of conservation in Ontario unless you take actions that actually engage the individual consumer or homeowner,” he said.
Ontarians currently get a $150 rebate on the cost of a $350 energy audit, whether or not it results in any energy-saving changes or renovations. Right now, Miller says homeowners have limited access to information about a home’s energy use.
I’m all for going green, but I’m not even sure why this is government territory. What happened to caveat emptor? We’re not talking about homeowners having to meet government standards. We’re talking about sellers being mandated to provide such a report to potential buyers. And then what? They’re out $350 and they have a report that says their home is not energy efficient enough. So, do buyers then expect a raft of improvements and/or a price drop? Can’t help but also wonder how much the government stands to pocket.
I could see the day when new homes come with energy consumption sticker, just like appliances, but when it comes to resales, let’s let commerce do its thing. I’m finding it hard to believe myself, but for once I’m glad McGuinty is letting something slide.Google+