Finance Minister Flaherty’s announcement this morning of tighter mortgage rules continues to emphasize mortgage debt as the culprit for record levels of household debt. However, these changes affect high ratio mortgages only, a very small part of the mortgage market. The real issue says the Mortgage Brokers Association of BC (MBABC) is growing consumer lines of credit, consumer loans, car leases and credit cards, and the unsecured lending practices of these lenders, not what homeowners are doing with secured mortgage debt. The new rules will primarily affect new and younger homebuyers, a demographic which does not typically shoulder high consumer debt.
Mortgage lending is not creating the problem of record levels of household debt, consumer debt is, according to the MBABC. By the time consumers need to refinance their mortgage, consumer debt already exists. A mortgage refinance can often be a solution to a homeowner’s debt issue, and these new changes reduce the effectiveness of this solution. It does not, however, resolve the main issue of consumer debt, which started the problem to begin with.
“Household debt loads are directly related to these unsecured debt factors, not mortgage lending”, says MBABC President Joanne Vickery. “Further tightening of mortgage rules is not necessarily the right answer. Consumers need to have the discipline to change their financial habits and to not take on debt that they cannot afford.”
“Consolidating household debt and rolling it into a mortgage is a smart option for an initial solution”, says Vickery “provided that any savings are then used to pay down the mortgage or invested into a retirement savings vehicle. Consumers cannot, however, continue to use their home as an ATM; they must change their habits on acquiring consumer debt.”
Vickery advises homeowners and those looking to buy a home to contact a qualified MBABC mortgage broker for assistance with determining home affordability as well as long-term debt planning and debt management.