TORONTO – Ottawa will continue to monitor the real estate market and take the necessary actions to ensure that an uptick in interest rates or a decline in home prices don’t threaten the country’s financial stability, Federal Finance Minister Bill Morneau said Friday.
“I will continue to act to ensure that household debt levels are sustainable, that lenders are acting prudently and that increases in interest rates or a housing market downturn don’t risk the economic growth we are working so hard to accelerate,” Morneau said in a speech to the Toronto Region Board of Trade.
“These are not easy decisions, but I know they are the right thing to do.”
Morneau said he’s “ultimately responsible” for maintaining the stability of the country’s financial system and highlighted mortgage rules as a “key tool” to help him do that.
Since taking office, Morneau has twice moved to stabilize the housing market.
Last December he increased the minimum down payment on the portion of a home worth more than $500,000 — a measure he said was aimed at tackling “pockets of risk” in the Toronto and Vancouver housing markets, where prices have been soaring.
And on Oct. 17 he rolled out a myriad of housing-related measures, including new rules requiring all insured mortgages to undergo stress tests to make sure borrowers will still be able to make their payments if interest rates go up. Previously the stress tests were not required for fixed-rate mortgages longer than five years.
“We will continue to be vigilant in monitoring the market,” Morneau told reporters following his remarks.
But he added that the government does not have any specific housing-related measures that it’s waiting to announce.
One policy decision that’s currently under consideration is whether Ottawa should shift more of the responsibility for mortgage defaults onto the banks.
Currently, banks and other mortgage lenders are able to transfer all of the risk from insured mortgages onto insurers such as Canada Mortgage and Housing Corp., which means taxpayers are ultimately on the hook.
The federal government launched formal consultations last week regarding “lender risk sharing,” a policy that could see lenders shoulder more of that risk, for instance via a deductible on mortgage insurance claims.