How well are people managing debt?

According to data contained in their recently released “Annual State of the Residential Mortgage Market in Canada”, the Canadian Association of Accredited Mortgage Professionals (CAAMP) suggest that more than two thirds of Canadians are comfortable with their debt and are also able to pay down their mortgages.  Additional information released in this report indicates one third of borrowers made additional payments or accelerated payments on their mortgages, 87% of homeowners have at least 25% equity in their homes and 61% of consumers who renewed their mortgage in the past year saw a reduction in their interest rate.  The report also found that, regardless of the initial amortization period selected by the home buyers, the actual repayment was generally completed within two thirds of the original amortization that was set out.

Earlier this year Finance Minister Jim Flaherty announced another round of lending rule changes aimed at restricting access to mortgages in an effort to avert a debt crisis.  This decision eliminated a large number of first time and self employed home buyers from the market and was obviously poorly received by the mortgage industry.  This report seems to suggest the stringent lending rules introduced by the government this summer may not have been necessary.  “Our most recent survey demonstrates once again that the vast majority of Canadian mortgage holders, whether they are first time buyers or long time homeowners, are acting responsibly when it comes to reducing their mortgage debt” said Jim Murphy, President and CEO of CAAMP.

In its report CAAMP did identify weaknesses in the mortgage market that could undermine the economy’s recovery.  Murphy continued by saying “Our concern today is the number of growing first time buyers who are now unable to get a mortgage.  We worry that this is having a dampening effect on what was already a cooling market and we hope policymakers will give some thought to addressing the needs of this key sector.”

CAAMP also warned the slowdown could impact job creation in the country.  Will Dunning, Chief Economist for CAAMP, was quoted as saying “Since the government tightened mortgage accessibility for the fourth time this past July, we’ve seen a drop in sales activity that I think foreshadows an overall decline in the housing market.  My concern is that the policy induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole.”