tammy forrest
RE/MAX First
8820 Blackfoot Trail SE #115
Calgary, AB
T2J 3J1 CA
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Last Updated: January 14, 2011 2:51pm

The Bank of Canada and the federal government have expressed concern in recent months about the increasing household debt-to-income ratio in Canada and are pondering measures to tackle the problem.

These include raising interest rates, perhaps prematurely, and applying new, stricter mortgage regulations in addition to those introduced last April.

For the moment, at least, it is only pondering.

In a speech last week, Agathe Cote, one of the central bank’s deputy governors, said inflation in Canada remained lower than the bank expected at this stage of the recovery.

“I think the view is that there is still a significant amount of excess supply in the economy so monetary policy needs to be, in a sense, still accommodative in these circumstances,” Cote said.

Translation: We won’t likely be raising the rate any time soon.

The bank raised its overnight lending rate three times last year, going from .25% to 1% but has left it steady since then, pending more evidence that the recovery is on solid footing.

The next rate reset is scheduled for Jan. 18 and (financial experts) see no change in rates at that time.

However, a Reuters poll revealed most of Canada’s primary securities dealers expect the Bank of Canada to resume raising interest rates sometime in the first half of this year.

The bank’s move, when it comes, will affect variable rates, while most Canadian mortgage holders have fixed rates, and Stu Pocock, a broker with CMAC mortgages, says he is unaware of a rise in fixed rates.

“I have not heard of any pending increase in interest rates,” says Pocock. “There has been talk of introducing tougher guidelines for mortgages and of course the major lenders (banks) are indicating they are the best to self-regulate the debt load of Canadians.

“My gut feeling is that for right now we are hearing talk, but at the end of the day there will not be any real action taken to change the current lending guidelines.”

Mark Herman, a broker with Mortgage Alliance, says if tougher regulations are introduced, they could revisit history.

“I expect that if (there are) any changes, we are going back to the old 1991 CMHC insurance policies which make it tougher to buy,” says Herman. “There is still the 5% down, but that is the new minimum and they will effectively restrict the maximum purchase price. By reducing the maximum amortization to 25 years and enforcing the maximum lending ratios (it) will reduce the maximum qualification, as well.

“(However) as long as Ontario is in the economic doldrums, there not be any wholesale changes. I think (any) changes will be phased in over time.
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