The latest government measures designed to cool Canada’s housing market are positives for both the big banks and the Canada Mortgage and Housing Corp. (CMHC), says Moody’s Investors Service in a report published on Thursday.
Changes that were introduced earlier this week to mortgage insurance eligibility requirements and the federal tax laws are credit positive, “because they will improve mortgage loan quality and reduce incentives for speculative real estate investment, both of which will reduce the potential for losses on Canadian mortgage loans,” the report from the New York City-based credit rating agency says.
Among other things, the changes mean that more borrowers will need to demonstrate that they can repay mortgages at higher interest rates, the report says. As well, certain mortgages will need to meet tougher underwriting criteria, non-residents will now pay capital gains taxes from house sales, and residents will have to prove that they qualify for capital gains exemption on the sale of a primary residence, the report notes.
“These taxation measures seek to reduce incentives for real estate speculation, which has been one factor contributing to rapid house price appreciation in Toronto and Vancouver,” the report says. “This appreciation has called some mortgage collateral values into question, so reducing speculation incentives will improve their integrity.”