Canada experiments with credit controls
Credit controls, though pretty unusual in western economies these days, are one policy option in response to asset bubbles, including perceptions of housing bubbles. Canada's government has this week decided to give such controls a try, though the controls themselves are mild.
From mid April borrowers in Canada will have loans assessed as if they were taking out a five-year, fixed-rate mortgage, for which rates are higher than on shorter, variable-rate loan.
Equity withdrawals will also be limited where someone refinances, with an upper limit on refinancing of 90 per cent of the loan to valuation ratio.
There will also be a floor of 20 per cent on deposit required on some investment loans deemed "speculative" and where the loan is supported by the Canadian Mortgage Housing Corporation.
Tougher measures debated over recent months were not adopted, such as greater deposit requirements on all loans.
Credit controls of this nature were canvassed and discounted in New Zealand some years ago and generally do not attract much discussion in Australia.