The comments, part of a comparison of the Canadian and British housing markets, come after a week in which the return of the mortgage indemnity guarantee was widely discussed.
It argued: “While compulsory mortgage insurance for higher loan-to-value lending has sheltered Canadian financial institutions from adverse market conditions, it has not prevented a significant housing boom nor a material build-up in household debt levels.
“It is clear that MIG has not represented a policy panacea in this regard, given that Canadian and UK households today face similar vulnerabilities.”
The Canadian housing market has come under scrutiny since the appointment of Bank of Canada governor Mark Carney as the next Bank of England governor. In the Canadian market, mortgage insurance is effectively compulsory on mortgages with a loan-to-value above 80% and covers the lender for the whole loan over the duration of the mortgage.
Once the insurance is paid for in the form of an upfront fee, house buyers can borrow at a high loan-to-value with interest rates comparable to lower risk loans.
Mortgage insurance appeared to have contributed to a less dramatic reaction among Canadian lenders to the financial crash, the CML acknowledged.
However, it also highlighted the government’s help in creating a mortgage bond and other mortgage-backed securities: “Since the credit crunch, Canada’s different institutional framework has furnished the federal authorities with a greater array of policy levers, which rely on stimulating the housing market to buoy the wider economy.
“A greater focus on supporting funding markets represents a key policy difference between the two countries, and one that appears to have helped to shelter the Canadian housing market from some of the volatility arising from the global credit crunch.”
