March 27 (Bloomberg) -- Canadian Finance Minister Joe Oliver said today he will continue to reduce potential risks to taxpayers of a downturn in the housing market after banks cut their lending rates to the lowest in about a year.
Oliver told reporters he spoke to Bank of Montreal Chief Executive Officer Bill Downe about the lender’s decision to lower mortgage rates in time for the spring home-buying season. Oliver said in a statement earlier today he’ll keep monitoring the market. They were his first comments on housing since replacing Jim Flaherty on March 19.
Policy makers, led by Flaherty, have tightened rules that govern mortgage lending amid concern the balance sheet of the federal agency that backstops mortgages has grown too large. The value of home loans insured by Canada Mortgage & Housing Corp. has almost doubled since the end of 2006.
“The government is gradually reducing its involvement in the mortgage market,” Oliver said he told Downe.
Most recently, the federal government began collecting a “risk fee” of 3.25 percent from Canada Mortgage & Housing on the insurance it writes.
Citing lower government bond yields, Bank of Montreal yesterday cut its five-year fixed mortgage rate to 2.99 percent from 3.49 percent. The Toronto-based bank cut its mortgage rate to that level a year ago, drawing the ire of Flaherty, who was concerned the cheaper financing would worsen an already overheated housing market.
“This rate change is driven solely by the fact that bond yields have fallen and we are in what has traditionally been the busiest season for buying a home,” Paul Deegan, spokesman at Canada’s fourth-largest lender, said by e-mail.
Downe’s competitors also offer mortgages below 3 percent, including Toronto-Dominion Bank, which has a rate of 2.97 percent on a four-year mortgage. Bank of Nova Scotia, the third-largest lender, announced a four-year mortgage at 2.94 percent on March 19.
The yield on Canada’s five-year government bonds, the benchmark security for mortgage lending, fell to an eight-month low of 1.51 percent on Feb. 3, dropping from as high as 2.16 percent in September. It has since gained, yielding 1.69 percent today in Toronto.
Julie Dickson, Canada’s top financial industry regulator, said in a Nov. 25 speech policy makers need to continue to monitor closely the nation’s housing market amid warnings that a real estate bubble may be emerging.
To contact the editors responsible for this story: David Scanlan at email@example.com Chris Fournier