Last month federal Finance Minister Jim Flaherty introduced changes to mortgage regulations that he hopes will reduce the probability of a housing bubble and will put the brakes on Canadians’ soaring debt loads. Flaherty’s move was the right thing to do, according to a survey of Canadian chief executives by Compas Inc.
When asked about the changing of the maximum amortization period for government-insured mortgages from 35 to 30 years, executives gave the move a mean of 5.5 on a 7-point scale, where 1 means strongly disagree and 7 means strongly agree. In terms of the new limits on the amount of money you can borrow against your home — the maximum was reduced from 90% to 85% — CEOs gave the decision a mean score of 5.9. When asked about Flaherty’s move to eliminate government insurance on home-equity lines of credit, CEOs gave the move a 4.7.
“Easy credit terms are a creeping illness,” said one CEO. “It is unfortunate that interest rates are low, as that has allowed people to spend more than they are really capable of supporting. Reducing loans against your home to 85% is also prudent, as that will encourage savings.”
In terms of the impact of the new rules on real estate prices and sales, few expressed serious concerns. Only 14% felt the market would be negatively effected, while the majority — 61% — said the changes were “about right.”
However, many CEOs felt the government should go even farther with mortgage reform. When asked if the minimum down payment should be raised from 5% to 10%, the executives responded with a mean score of 5.5.
One hot-button issue for the CEOs was the question as to whether they thought young adults — who now spend more time in college and university and carry higher debt loads — should get a break when it comes to mortgage policy. There was little sympathy from the CEOs — 62% said they weren’t in favour of the government making it more affordable for youth to purchase their first home. “It’s a matter of priorities,” said one CEO. “If you want a house, do what everyone else has done. Save, scrimp, start modestly and build your equity.” Another executive added: “The newer generation spends more time in university, but their income potential is much higher than the previous generation.”