"...Canada plans to increase credit access for the country’s riskiest borrowers in the years to come. A re-elected government may not seem like change, but they promised a big one — larger insured mortgages. High-ratio borrowers will see an increase of up to 25% of their maximum mortgage size. Expansion of credit during a low inventory market is one of the fastest ways to increase prices. It was one of the primary drivers of growth during the US real estate bubble, prior to the Great Recession. It’s an odd policy to embrace, and likely to push prices higher, or at least prevent them from falling.
Canada is planning to increase the maximum that can be borrowed on a high ratio mortgage. High ratio mortgages are those where the buyer puts less than 20% down on the purchase price. Currently, buyers are limited to home prices of less than $1 million. If the proposed changes go through, this will increase by 25% to $1.25 million.
Further, the high ratio maximum will no longer help to slow growth for cheaper housing. It will be indexed to the Consumer Price Index (CPI) as well. This is somewhat ironic, since shelter costs are nearly a third of the CPI index. Bubbles will now self-adjust as they push the credit boundary higher. It’s the human centipede of mortgage plans.
High-ratio mortgages were originally designed for low-income households to break into the market. It makes sense for taxpayers to take on that sort of risk, since it helps build the middle class. That’s not what’s happening here. To take advantage of a $1.25 million maximum mortgage, a household needs at least $155,000 per year in income. In addition, they would need at least another $250,000 for the down payment..."
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