Federal government to raise capital that lenders need to back mortgages

Mortgage growth is projected to slow down after the Office of the Superintendent of Financial Institutions announced its intention to increase the capital requirements for lenders who will back residential mortgages, experts said.

In addition, the Canada Mortgage & Housing Corp. is contemplating a raise on the cost to securitize home loans.

Observers said that these moves are in line with the federal government’s effort to stave off further price increases. Costs have spiked up by an average of 9.9 per cent, translating in a rise to $621,883 in Toronto and to $893,864 in Vancouver.

Analysts warned, however, that these steps will make it more difficult and expensive for Canadian banks to operate in the housing market, as they will have to implement stricter standards and narrower margins while slowing down on mortgages and credit lines.

According to industry players, the scenario is fraught with risks, especially in the current climate of default risks and growing home prices.

“The added capital for banks is a safety measure. The banks will issue fewer loans, and that will cool the market. It won’t kill it, but it will cool it,” Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal told Financial Post.

Private sector representatives agreed with the assessment, with some firms already adjusting charges for annual guarantees of at least $7.5 billion.

“It encourages the private market by bringing the cost of doing business … more in line with the market. This is one step to making the private market more attractive,” DBRS Ltd. vice-president Paul Bretzlaff said. \

MBN

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