2012 Federal Budget: Friendly towards mortgages

It’s business as usual

Minister Flaherty did not deliver yesterday any earth shattering news affecting the mortgage industry. Lenders and mortgage brokers were worrying that rumoured reduction of the maximum amortization from 30 to 25 years and an increase of the minimum down payment requirement to 7% or even 10% would be a devastating to their business. These rumours did not pan out.

In another words, it is business as usual. Still the budget calls for some pending changes to the way of governing CMHC – the main mortgage insurer in the country. It remains to be seen what this will amount to.

Even without introduction of new rules, getting a mortgage have become more difficult. It seems that tough talk from Governor Carney, Minister Flaherty and some bank economists about ballooning personal debt is enough to trigger self-imposed restrictions. As reported here, some lenders scaled back or completely eliminated lending to certain self-employed individuals, who are not able to provide solid proof of their income. In addition, lenders started to scrutinize mortgage applications like never before and if there is anything that makes them uncomfortable to lend, they will decline the mortgage.

The $64,000 question, however, is how cutting 19,200 government positions would affect the housing market, especially in the National Capital Region? It’s no secret that 32% of all federal government workers are located in Ottawa-Gatineau. Would these cuts affect the real estate market here? Regardless of what realtors think, there will be a negative effect.

Here is how I look at it.

During the last few years the housing boom in Ottawa was driven by these three elements:

  • First time home buyers (mainly young professionals starting jobs at different government agencies)
  • Upgrading – selling the small house and moving to a bigger one ( business people, but also middle rank civil servants)
  • Buying rentals – middle age investors with stable income and accumulated savings (lots of them again work for the government)

The important point here is that this group of buyers are the cream of the cream – they have the money and it is relatively easy for them to get the financing. After the cuts, that group would become smaller.

Let’s watch what happens next.

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