Revisiting the Canadian Mortgage Market - Risk is Minimal
TORONTO, Jan. 19 /CNW/ - Prudence is what everyone is calling for when
it comes to the housing market and a fresh economic review released
today by CAAMP finds that Canadian "lenders and borrowers have been
highly prudent in the mortgage market."
The report, which focuses on the highest risk mortgages, is an update on
CAAMP's January 2010 report. It was prepared by CAAMP Chief Economist
Will Dunning and can be found at www.caamp.org.
Vast majority of borrowers holding highest risk mortgages have
considerable room to absorb interest rate increases
Assuming a 5 per cent interest rate (1 per cent increase on fixed and
2.5 per cent increase on variable mortgages)
the average gross debt service (GDS) would increase to 24.6 per cent and
the average total debt service (TDS) would increase to 33.7 per cent
Less than 1 per cent of these highest risk mortgages would have TDS
ratios of 45 per cent or more
Applying these results to the broader population, there might be about
800 to 950 buyers whose mortgages were funded during 2010, with
variable/adjustable rate mortgages, whose TDS ratio would be 45 per
cent or higher
Among the high ratio loans approved in 2010 - with the reduced
amortization period (30 years versus the prior 35 year limit), a small
minority (about 2 per cent) would have TDS ratios above 45 per cent and
those loans would probably not qualify. Some of those consumers would
still be able to buy, by buying lower priced homes.
Unaffordable premium increases are a negligible risk factor at present
and in the near-to-medium term future. Recent discussions have focused
on this negligible factor.
Most mortgage defaults stem from reduced ability to pay mostly because
of job loss or reduced income. Over-extension - adding more debt after
taking a mortgage - is another risk.
A third cause - unaffordable increases in mortgage payments - is the
source of recent concerns about future threats.
The study concludes that very few Canadians face unaffordable increases
in mortgage costs and Canadian lending criteria are already tight.
SOURCE Canadian Association of Accredited Mortgage Professionals
For further information:
or to arrange an interview with Jim Murphy, AMP, President and CEO of CAAMP, or Will Dunning, CAAMP Chief Economist, please contact: