December 11, 2015 / 1:22 AM / 4 years ago

Canada finance minister sets announcement, housing possible topic

OTTAWA (Reuters) - Canadian Finance Minister Bill Morneau has scheduled an announcement for Friday morning, and while no topic was given, the government is facing a key decision on how it might cool a heated housing market.

Canada's Finance Minister Bill Morneau takes part in a news conference in Ottawa, Canada, December 7, 2015. REUTERS/Chris Wattie?

A CTV News report, which did not cite its source, said that the federal government is expected to tighten mortgage rules on Friday in an effort to cool the red-hot housing markets in Toronto and Vancouver.

It said the regulations will increase the minimum down payment required to buy a home for more than C$500,000 ($366,350), with portions beyond that amount requiring a 10 per cent down payment. The down payment on the first C$500,000 will remain at 5 percent.

The regulations are expected to take effect in early 2016, the report said.

A spokesman for Morneau earlier declined to comment on the announcement scheduled for 9:30 a.m. (1430 GMT) on Friday.

Canada avoided the housing crash of 2007 that hit the United States and triggered the global financial crisis. But a post-recession housing boom, fueled by record-low borrowing costs, has prompted some analysts to warn a bubble may be in the works.

Under Finance Minister Jim Flaherty, the former Conservative government stepped in four times from 2008 to 2012 to tighten mortgage lending rules.

Since then, Canadian household debt as a percentage of income is at an all-time high, in large part because of big mortgages taken on as housing prices rise, particularly in the major cities of Vancouver and Toronto.

Finance Department officials have for two or three years been recommending some form of action to try to prevent financial trouble, one industry source said.

The Conservatives, who lost power to the Liberals in the Oct. 19 election, had been contemplating action if they won, the source said.

A second well-placed source said a lead option being considered was to increase the percentage down payment required for insured mortgages over a certain dollar amount, beyond the current 5 percent.

Such a tiered system, with a greater percentage required the larger the mortgage, has the advantage of trying to target the hotter markets without shaking areas where prices are much lower.

The drawback is that it could add to the woes of markets in cities like Calgary, which still have expensive housing because of past resource booms but are now suffering because of slumping oil and commodity prices.

($1 = 1.3648 Canadian dollars)

With additional reporting by Jeffrey Hodgson in Toronto; Editing by David Gregorio, Peter Cooney & Kim Coghill

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