Too hot can cool down quickly

Staff ~ The Amherst Daily News
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A somewhat more conservative approach to banking regulations in Canada has been held up as a model in international talks about the financial industry.
As many expected, the federal government moved on Tuesday to tighten rules regarding home ownership to help Canadians avoid financial risk they can't handle. As well, although Finance Minister Jim Flaherty has said he doesn't believe there is at this point a real estate bubble, he wants to avoid that outcome.
Among changes: the limit Canadians can borrow on their homes will go from the current 95 per cent of the value to 90 per cent. As some have commented, it's a good idea to discourage owners to treat the equity in their homes as a kind of ATM machine. And to discourage speculation, prospective buyers who want to purchase a property for rental purposes will have to come up with a 20 per cent downpayment, instead of the current five.
Considering cheap loans and rampant home buying were at the core of the U.S. financial meltdown, this cooling off approach is a good step. The Canadian Association of Accredited Mortgage Professionals said it supports the amendments, to come into effect April 19, calling them preventative measures against possible future risk.
Much of the reason for the move - and the timing - is that interest rates, which are at historic lows, are expected to begin to rise by this summer.
There are other steps the government could have taken to ensure that buyers take on what they can afford, buy Flaherty said he wanted to stick with middle ground. Some of those other options could be considered later.
Interestingly, the measures come at the same time that a study released by the Vanier Institute of the Family shows average family household debt in this country climbed to $96,100 last year. It estimated the average debt-to-income ratio for families at 145 per cent - the highest ratio ever recorded by the annual study, now in its 11th year.
Rules that will tend to curtail that pattern come at a good time.

Organizations: Canadian Association of Accredited Mortgage Professionals, Vanier Institute of the Family

Geographic location: Canada, U.S.

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