Ottawa Limits Number Of Mortgages Insured By CMHC

By: Justin Leung on August 7, 2013

Canada’s housing market is likely to witness a larger slowdown than forecast in the months ahead.  The Canada Mortgage and Housing Corporation will cap the amount of mortgages they insure, which will undoubtedly affect the volume of national home sales.

The CMHC issued a press release stating that it will only insure up to $350 million worth of mortgages each month for all banks and other lenders.  According to a spokesperson for the organization, the cap limit is a requirement due to the “unexpected demand” for government backed home loans.

The cap is the latest government intervention in the Canadian housing market.  In 2012 Finance Minister Jim Flaherty toughened mortgage lending rules to weed out unqualified applicants, while also limiting the amount of CMHC backed loans to $76 billion for the entire year. 

By the end of the year, the housing market slowly cooled down and household spending was beginning to ease off as well.  As a result, Ottawa increased the annual limit to $85 billion earlier this year, but by the end of July, the CMHC already insured $66 billion worth of mortgages.

Previous government intervention primarily affected would-be homebuyers, but the new cap limit largely affects banks by shifting lending risk to them.  Many housing economists expect the number of national home sales will decline by the end of the year as a result of the CMHC mortgage insurance limit.