On June 22, Finance Minister Jim Flaherty announced a number of changes to residential mortgages and the way in which they are transacted. His rationale is the federal government was introducing these changes to protect Canadians from their own buying habits.
The changes included reducing the maximum amortization period from the current 30 years to 25 years and limiting how much homeowners can borrow on the value of their home from 85 per cent to 80 per cent.
The government will also no longer be in the business of insuring homes that are worth in excess of $1 million. Finally, they are setting cost ratios on household income of 39 per cent for gross debt service and 44 per cent for total debt service.
These changes will result in some recalculations on the part of prospective homebuyers but experts predict the new legislation will not derail the housing market, especially not in Manitoba.
In my opinion, this was a Vancouver, Calgary and Toronto move. The finance minister was not analyzing the situation in Manitoba when he created this legislation. We do not have the same magnitude of concerns in these areas.
The minister actually chose options that were less damaging than some alternatives. I am certain he looked at, but refused to increase, interest rates as a solution. In fact, by seeking out other alternatives, this could be taken as a sign that increasing interest rates is not an option in the foreseeable future.
Historically low interest rates are good news for Manitobans. Economic stability in Canada and Manitoba is key. We are not Europe, nor are we the U.S.
If the minister wants to continue to reduce personal debt but keep Canada's residential market thriving, there are other moves that can assist.
Considerations such as a reduction in government-imposed costs such as additional taxes on new homes would assist the buyer. Adjusting the federal threshold for GST rebates for new homebuyers (not adjusted in over 20 years) would also be a healthy consideration.
This legislation will definitely increase monthly payments for those using a 25-year mortgage, but it will also decrease the total payment over time. It may cause some to delay their purchase, but it shouldn't stop Manitobans from doing so.
Our market has been strong and will continue to remain so for quite some time.
Mike Moore is president of the Manitoba Home Builders' Association.
