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Mortgage Rules don’t Always Stop People from Borrowing

Mortgage rules may be tighter, but that doesn’t mean Canadians don’t have any way to borrow!

Last July, after Canadians continued to ignore warnings about debt from the Bank of Canada and the federal government, Finance Minister Jim Flaherty stepped in and forced us all to listen. Bringing in mortgage rules that capped the amount available on home refinancing from 85 per cent to 80 per cent, and that also cut HELOCs and home equity loans down to the same percentage, the government hoped that this would stem Canadians’ flow of borrowing. When it comes to the housing market, those rules may have worked. Demand has softened, and prices are starting to come down. But while our housing market may be in a cooling period, that doesn’t necessarily mean our borrowing is.

This is because there are other ways to borrow aside from the housing, mortgage, and refinance market, and Canadians know it. That’s evident when you look at the fourth quarter of last year, when non-mortgage loans such as credit cards, personal lines of credit, and car leases increased by 3.2 per cent, according to Equifax. And during the period of July through September 2012, our borrowing on those kinds of loans had increased 2 per cent. A smaller number yes, but the mortgage rules had just been introduced at that time, indicating that the longer they’re around, the more we’ll rely on other forms of borrowing.

The problem with that is not only that we’re still taking on excessive amounts of debt – the very thing Flaherty was trying to stop when he introduced the mortgage rules in the first place. But it’s that these other, more personal types of loans carry a much, much higher interest rate than any type of mortgage product does.

The findings, which came out of Equifax’s National Credit Trends study, does show some good news though. While in the third quarter of last year our unpaid non-mortgage debt stood at 1.22 per cent, that dropped slightly in the fourth quarter to 1.19 per cent. So maybe, even if we are finding the costliest ways to borrow, we can still afford the debt we are taking on after all.

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