Canada to tighten mortgage rules: source

Thu Jun 21, 2012 10:17am EDT
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OTTAWA (Reuters) - Canada is set to tighten mortgage rules on Thursday as it seeks to cool a heated housing market, by cutting the maximum term of mortgages and reducing the amount a home buyer can borrow, a government official said on Wednesday.

The announcement, expected at a news conference with Finance Minister Jim Flaherty, will be the fourth time the government intervened to curb the mortgage market since 2008.

The Finance Department says Flaherty is scheduled to hold a news conference on Thursday at 8:15 a.m. (1215 GMT).

A government official, who spoke on condition of anonymity, said the government will reduce the maximum amortization period of a mortgage to 25 years from 30 years, and lower the level of home equity that can be borrowed against to 80 percent from 85 percent.

On its main evening news program, the Canadian Broadcasting Corporation said changes at the government housing agency responsible for insuring higher-risk mortgages were also possible.

Rising housing prices and extremely low interest rates for mortgages have fueled a Canadian real estate boom that has led some analysts to predict a bubble that could raise the risk of a crash and a broader economic downturn.

Prices have softened in some markets recently, but a strong condominium market in Toronto, the country's largest city, has been of particular concern to policymakers.

The Bank of Canada said this month that high household debt was the biggest domestic risk to the economy. The debt-to-income ratio is at a record high of 152 percent.

(Reporting By Louise Egan and David Ljunggren; Editing by Janet Guttsman and Eric Walsh)

Canada's Finance Minister Jim Flaherty listens to a question during a news conference in Ottawa June 21, 2012. REUTERS/Chris Wattie