How Canada Has Tried to Cool Down Its Housing Market: Chronologyby and
Finance Minister Bill Morneau’s decision Monday to tighten mortgage insurance eligibility is part of a long list of measures over the past decade to cool Canada’s housing market. Here’s a timeline of some of the major steps taken by policy makers.
The federal government announces rules to tighten access to mortgage insurance for commercial banks and make it more difficult for foreign homeowners to claim a capital gains exemption after any home sale. Morneau also says he will start talks on whether banks should carry more risk in the housing market.
Vancouver proposes a tax on vacant homes, with the levy reaching as much as 2 percent of the property’s assessed value -- or a minimum C$20,000 ($15,300) annual payment for a typical detached home worth C$1 million ($760,000) in the region. Vancouver Mayor Gregor Robertson says the city has a “rental housing crisis.”
The British Columbia government announces a 15 percent property-transfer tax that will apply to foreign nationals and overseas buyers of residential property in the Metro Vancouver area, as of August. This comes after the province began collecting data on property buyers, and found over a one-month period this year foreign nationals represented 6.6 percent of sales and 7.9 percent of total investment.
In a coordinated move, Prime Minister Justin Trudeau’s new Liberal government makes its first foray into the issue, as Morneau raises down-payment requirements for homes with a purchase price above C$500,000. At the same time, the country’s financial regulator -- the Office of the Superintendent of Financial Institutions -- said it would raise the minimum amount of capital lenders and insurers need to set aside on residential mortgage loans tied to local housing conditions and incomes. Canada Mortgage & Housing Corp. sets higher fees for the guarantees it offers on debt backed by mortgages.
CMHC begins taking action to rein in its role in the country’s housing market. Over a span of more than a year, the housing agency starts rationing the amount of mortgage-backed securities it guarantees, imposes new fees to the federal government on the insurance it writes, and announces it will no longer insure financing for condominiums.
Finance Minister Jim Flaherty tries persuasion to keep prices in check by telling banks they shouldn’t cut borrowing costs any further.
Flaherty tightens mortgage terms for a fourth time in four years, shortening the maximum amortization period on mortgages the government insures to 25 years from 30 years. The country also lowers the maximum amount homeowners can borrow against the value of their homes to 80 percent from 85 percent, caps mortgage debt payments at 39 percent of income and limits government mortgage insurance to homes worth less than C$1 million.
Canada prohibits banks from using insured mortgages to back covered bonds.
OSFI releases new guidelines for mortgage underwriting, urging lenders to establish internal standards on the ability of borrowers to service their debt and take “reasonable steps” to verify income.
Canada shortens the maximum amortization period for government-insured mortgages to 30 years from 35 years, lowers the maximum amount homeowners can borrow against the value of their homes, and withdraws its insurance on home-equity lines of credit.
Flaherty tops up measures by harmonizing standards between fixed and variable-rate mortgages. Limits on refinancing were also ramped up and a new down payment requirement of 20 percent imposed for people buying a home that they don’t occupy.
Amid worries that the U.S. housing crisis could spill over into Canada, former Prime Minister Stephen Harper’s government takes the first steps to rein in lending by limiting mortgages to a maximum term of 35 years, from 40 previously, and requiring a minimum down payment of 5 percent, compared with zero. The rules also required borrowers provide new types of documents and have a minimum credit score. The changes came after Flaherty and the Bank of Canada expressed concern about the proliferation of looser mortgages. Mortgages lasting longer than 25 years had made up about half the loans written in Canada over the previous year.