New mortgage rules implemented this past spring have stemmed the flow of new buyers and put a chill on refinancing activity, the agency that insures Canada's housing market says.
The Canada Mortgage and Housing Corporation issued its second quarter results on Monday, and the numbers paint a picture of a housing market in flux.
In March, Finance Minister Jim Flaherty unveiled the latest round of tweaks to Canadian mortgage rules designed to make it harder for Canadians to bite off more debt than they can withstand.
Lenders typically require mortgage insurance for loans made to anyone who wants to buy a home with a down payment of less than 20 per cent of the purchase price. And the Canadian Bank Act prohibits most federally regulated lending institutions from insuring more than 80 per cent of the value of a home. Some do, but the CMHC is the ultimate backstopper of most highly-leveraged home loans.
The two main rule changes implemented in March were a reduction of the maximum amortization time to 30 years from 35, and a reduction in the maximum amount a homeowner is allowed to refinance — to 85 per cent of the value of the home, down from 90.
By the end of June, the impacts of those rules were already being felt, with the CMHC seeing an instant 10 per cent reduction in the number of mortgage insurance applications. That figure rebounded somewhat, but by the end of June, it was still five per cent below the level it was prior to the changes.
The move to 30-year amortizations was expected to somewhat reduce the number of new buyers. But the refinancing change has had a much more significant impact.
At the end of June, refinancings were down by 40 per cent, CMHC said Monday.
The agency has only recently started posting its quarterly results, because of changes to Ottawa's Financial Administration Act, which were laid out at the same time as the new mortgage rules came into play.
Despite the slowdown in new applicants, the total value of CMHC's loan portfolio was $536 billion at the end of June, a 9 per cent increase from $490 billion at the same point last year.
The CMHC has made it almost impossible to get a mortgage of more than 30 years, but it's interesting to note that the average amortization period actually crept slightly higher in the first six months of the year. The average CMHC-insured mortgage had an amortization period of 24.6 years at the end of June; it was 23.9 during the same period in 2010.
And the average outstanding loan amount on a Canadian mortgage was $158,894 at the end of June, CMHC says.
The agency saw little change in the number of people falling behind on their mortgage payments. CMHC views any home loan more than 90 days late on payment as being in arrears, and the mortgage arrears rate was steady at 0.4 per cent of all homeowners at the end of June.
That figure has remained steady since May 2010, the CMHC said.