Mortgage lending requirements in Canadian banks about to get tougher

Canada’s Finance Minister, Jim Flaherty will announce this morning a change in lending rules that will further limit the amount of cash buyers can borrow to finance a home according to a report on Globe and Mail.

Stimulus cash, and historically low interest rates have created an enticing environment for Canadian home buyers who have flooded the market to produce near record sale numbers across much of the nation. The average selling price of a Canadian home gained nineteen percent in a year while the economy was largely stagnant, prompting talk of a housing bubbleand concern that some buyers may not be able to service their current debt levels when rates return to historical norms.

There is general consensus in the financial community that raising interest rates is not the right answer to cool what some see as an overheated housing market. Bringing this beast under control without mucking things up for the economy in general is a delicate dance. Some are speculating that the rule changes will bring tougher qualification rules, and perhaps a reduction in the maximum allowable amortization period to repay a mortgage. The Canadian government reduced the maximum allowable amortization period from 40 years to 35 years in July of 2008 following a massive run up in home prices across Canada.

Flaherty will address reporters in Ottawa this morning at 8:00 AM Eastern.

Update: New Canadian mortgage rules effective April 19 2010

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Norm Fisher
Royal LePage Vidorra