Mortgage shoppers opt for caution

January 14, 2010
Mortgage shoppers opt for caution

Garry Marr and Paul Vieira, Financial Post
Published: Thursday, January 14, 2010

The housing industry fired back yesterday at comments from Ottawa that the sector might be overheated with a new report that shows Canadians have become conservative in their mortgage choices, leaving little chance for delinquencies.

The Canadian Association of Accredited Mortgage Professionals surveyed its members, who issued more than 40,000 mortgages totalling $10-billion during 2009, and found 86% of loans went into fixed-rate mortgages. Of those, more than 70% had fixed rates for longer than five years.

Jim Murphy, chief executive of the Toronto-based group, said the report’s results show the risk in the marketplace “is clearly manageable.” He left little doubt about one of the reasons his group compiled the research.

“It was done in response to some of the musings at yearend by first the Finance Minister and then governor of the Bank of Canada,” Mr. Murphy said.

Mark Carney, the Bank of Canada governor, has warned about rising levels of household debt, which is reaching record levels. He has said consumers may be failing to account for higher interest rates in the foreseeable future, leaving households “increasingly vulnerable” to any economic shocks.

Shortly after Mr. Carney’s remarks, Jim Flaherty, the Minister of Finance, was asked by reporters whether he was considering tightening mortgage requirements.

“If we had to we could, and it is something that we are watching and monitoring. But so far there’s relative stability in the sector,” Mr. Flaherty said.

The CAAMP survey addressed the overall debt concern and found “the vast majority of people who took out their first mortgage last year borrowed less than they could afford to, as their gross debt service ratios are far below allowed maximums, even at the higher interest rates that are used to qualifying them for their mortgage.”

Mr. Murphy said his group’s report has been forwarded to the Minister’s office which continues to look at whether it should apply any brakes to the housing market. About 18 months ago, the government did limit the maximum amortization period to 35 years and demand consumers have 5% down on all government-backed loans.

Stephen Dupuis, chief executive of the Toronto-based Building Industry and Land Development Association, said the study by the mortgage brokerages confirms conservatism is still ruling the housing market. He said first-time buyers, the most vulnerable to any change in rates, continue to overwhelmingly get long-term fixed-rate mortgages. While rates may be much higher in five years, he said the income of first-time buyers tends to climb by the time they get their second mortgage. “There has been a massive overreaction,” Mr. Dupuis said, about calls to shorten amortization periods and increase down payments.

Mr. Dupuis added that while 2009 purchases in the Toronto area rebounded sharply from 2008 lows, sales are still well off levels reached in 2007. The same is true for much of the country. There is little doubt any move to tighten regulations will have negative consequences on the market, said Benjamin Tal, senior economist with CIBC World Markets. He estimates at least 25% of the new purchases would be affected by a change in the down payment.

“The industry is fighting back and asking the government to look at the data before making any decision,” Mr. Tal said, referring to the latest salvo fired by the mortgage brokers.



  • Eighty six per cent of these home buyers chose fixed rate mortgages.
  • Among borrowers who chose fixed rates, a significant number opted for longer terms
  • less than 5% chose terms of two years or less.
  • Twenty per cent took three year terms, 5% four years, leaving 70% with a fixed rate for five years or more.
  • The vast majority of people who took out their first mortgage last year borrowed less than they could afford to, as their Gross Debt.

Source: CAAMP