TORONTO (AP) — Canada is clamping down on mortgage rules in response to concerns over household debt and a hot housing market, the country's finance minister said Thursday.
Finance Minister Jim Flaherty said the government is cutting the maximum term of government insured mortgages to 25 years from the current 30 years. It is also dropping the limit that Canadians can borrow against their home equity.
The head of Canada's central bank and the government has long warned that some Canadians were borrowing too much in times of historic low interest rates.
Flaherty suggested that the central bank's hands are tied and that interest rates are not likely to rise soon because of the European debt crisis and slow growth in the U.S.
"We're not likely to see increases in interest rates by the Fed in the United States, for example, for a while. So my job is to look at our own country and look at the residential real estate market and make the best judgment that we can," Flaherty said.
Flaherty said the measures are the latest steps taken to protect the stability of the housing market and to help prevent Canadians from getting overextended. He said the housing market in Toronto, Canada's largest city, is of particular concern.
"It's a question of trying to moderate behavior and I hope Canadians will reflect before they jump into a market at the high end," Flaherty said. "It will mean that some people will not buy into the market, it will also mean that some people will buy less into the market, they'll buy a less expensive home or less expensive condominium.
"Good. I consider that desirable."
Canada's commodity-rich economy has fared better than other nations. There was no mortgage meltdown or subprime crisis in Canada, and Canada's banks are rated among the soundest in the world. But there are fears of a housing bubble in places like Toronto where many are being priced out of the market or are taking on too much debt.
In a speech in Halifax, Bank of Canada governor Mark Carney said the changes would reduce the risk of household debt, calling them "prudent" and "timely."
Recently, the Bank of Canada estimated that the number of households in arrears could almost triple to 1.3 percent if the unemployment rate were to rise by three percent, about the same as occurred in the 2008-09 slump.