BoC flags risk from low-ratio mortgage loans

The Bank of Canada has released its latest assessment of the financial system and has once again highlighted risk from mortgages.

While the overall tone of the report is positive - “Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,” said Governor Stephen S. Poloz – mortgages are a notable worry.

The governor said that there has been a shift in mortgage activity with an improvement in the quality of new high-ratio mortgages (downpayment less than 20%) but an apparent rise in low-ratio loans being issued to highly indebted households.

The BoC says that the tighter lending rules which come into force in just over a month are expected to mitigate that risk over time.

The bank also expects the policy measures taken to cool the housing markets in the Greater Toronto Area and Greater Vancouver Area should begin to ease activity, noting that price increases are continuing to be driven by the growing economy and tight supply of homes.

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