Canada's mortgage industry association says tougher mortgage qualification standards introduced last April have worked to reduce Canadian debt, and may have made the stricter rules outlined this week unnecessary.

Finance Minister Jim Flaherty had previously tightened mortgage rules in April 2010, making this week's further restrictions unnecessary, a mortgage association says. (Adrian Wyld/Canadian Press)

A report by the Canadian Association of Accredited Mortgage Professionals says new standards implemented last year have disqualified potential borrowers who would have otherwise entered the market.

Among many changes implemented in April 2010 was a requirement that all borrowers must be approved for a five-year fixed-rate mortgage, whether they opt to obtain a mortgage on those terms or not.

The intent was to ensure that Canadians weren't getting in over their heads in debt, Finance Minister Jim Flaherty said at the time. He has since tightened the standards further by banning CMHC-insured mortgages of more than 30 years.

CAAMP says the move may be unnecessary because the April changes have already had an effect. Canadians' housing debt ratio has edged down to 28.2 per cent in the second half of the year from 28.9 per cent for the full year, the group said Wednesday.

"In fact, some might argue that with the changes implemented in April 2010, Canadian criteria are currently too tight," the report says.

Outstanding mortgage debt in Canada surpassed $1 trillion in August and stood at $1.08 trillion in October. That figure has increased 57 per cent in the last five years.

Among the report's findings:

• 79 per cent of Canadian homeowners opt for fixed rate mortgages, versus 21 per cent who choose variable rates and are more vulnerable to interest rate changes.
• The average "gross debt service" ratio for variable-rate homeowners is 19.6 per cent — well below the 32 to 35 per cent standards that most lenders require.

Speaking in Regina for pre-budget consultations, Flaherty was asked what he thought of the CAAMP's report and the suggestion that new rules outlined on Monday are unnecessary.

"These are matters of judgment and striking the right balance," the finance minister said. "There’s obviously a certain degree of self-interest that some have with respect to the housing market. Our concern, certainly my concern, has been to strike the right balance between the availability of credit in the residential housing sector and the danger of developing any sort of bubble.

"Three times now we’ve tightened rules — in 2008, 2010 and again on Monday this week. I think we’re on the right course. I think we’re striking the necessary balance," Flaherty said.

With files from The Canadian Press