[OTTAWA] Canada's newly elected Liberal government said on Friday it will force people who want to buy more expensive houses to provide a bigger down payment, in a bid to cool parts of a hot housing market some fear is developing into a bubble.
Finance Minister Bill Morneau told reporters he was acting to contain risks in the major cities of Toronto and Vancouver, where prices have continued to surge even as an oil price slump and a mild recession in the first half of the year slowed activity in other parts of the country.
But he rejected talk of a bubble, saying the mortgage rule changes, along with other measures announced on Friday, would ensure stability. "This is going to help create stability for the overall market by targeting pockets of risk," he said, adding that the steps would affect only around 1 per cent of the market.
Home prices in Canada have risen in recent years, fuelled in part by low borrowing costs. While the Bank of Canada has expressed concern about rising household debt, it also cut interest rates twice this year in response to tumbling energy prices.
With debt-to-income levels at record highs, some fear an eventual interest rate rise will be too much for those who have over-extended themselves.
The new measures will increase the downpayment to 10 per cent from 5 per cent for the portion of the home price that is above C$500,000 (S$515,362). For homes worth C$1 million or more, the required downpayment will remain 20 per cent.
The regulations will come into effect Feb 15, 2016, and will not affect Canadians already holding mortgages.