Mortgage regulation as a quick fix for the financial crisis: standardised lending and risky borrowing in Canada and the Netherlands

Figures & data

Figure 1. Mortgage debt Canada and the Netherlands 2004–2010.

This figure shows the collective outstanding residential mortgage debt as a share of the Gross Domestic Product in Canada and the Netherlands between 2004 and 2010. Source: CBS (2005, 2014, 2019), StatCan (2019) and the World Bank (2019).

Table 1. Timeline of mortgage rule changes in Canada.

When	Who	What
2008 − 2012	Dep. of finance	Gradual amortisation reduction from 40 to 25 years for insured mortgages.
2008	Dep. of finance	Min down payment of 5 percent required.
2008	Dep. of finance	New loan documentation standards introduced regarding level of income and evidence of property value.
2012	OSFI	Credit limits of 39 percent gross debt service and 41 percent total debt service are implemented for all borrowers (instead of only for borrowers with credit scores below 680).
2013	CMHC	Securitisation changes: CMHC introduces a new allocation procedure for market NHA-MBS making it easier for smaller institutions to securitise their mortgages and thus increases competition on the securitisation market. Caps on the CMB and NHA-MBS programmes are introduced to decrease the government exposure through public securitisation.
2013	OSFI	Securitisation changes: federally regulated lenders are granted off-balance sheet treatment for securitised mortgages. This allows for more origination capacity.
2014	CMHC	CMHC stops providing mortgage insurance for real estate that costs more than $1 million.
2015	CMHC	Securitisation changes: CMHC increased the number of mortgages it will guarantee from $120 to $145 billion. CMHC increased the guarantee fees of the NHA-MBS and CMB programmes (makes the public securitisation programmes more expensive and less popular).
2016	Dep. of finance	Stress test for all high-ratio uninsured mortgages.
2016	Provincial government of BC	Foreign buyers-tax introduced, meaning that all foreign buyers (corporate and individuals) have to pay a 15 percent tax on real estate purchases in the Greater Vancouver Area
2016	Provincial government of BC	B.C. First-time home buyers-assistance. This programme contributes to the required down payment of 5 percent in the form of a second mortgage, which is interest-free and payment-free for the first 5 years.
2018	OSFI	B-20 guidelines implemented, which extends the stress test also to insured mortgages. The stress test ensures that households will still be able to repay their mortgages in the case of a two percent interest increase.

Source: Carter (2012), City of Vancouver (2018), CMHC & Fundamental Research corp. (2015), OSFI (2017), Walks (2012) and interviews with key figures.

Table 2. Timeline of mortgage rule changes in the Netherlands.

When	Who	What
2011	Association of Dutch banks and other mortgage lending institutes	New Code of Conduct. Max LTV of 104. More rigid calculation of max housing costs. Max 50 percent of mortgage loan can be interest-only.
2013	National government	Implementation ‘Wet Tijdelijke Regeling Hypotecair Krediet’ [law temporary mortgage credit regulation]. Max LTV will be further reduced to 100 percent in 2018. Only mortgages that are repaid within 30 years are eligible for interest deduction (mortgages closed before 2013 are exempt).
2013	National government	Property transfer tax stays at 2 percent (instead of proposed re-increase to 6 percent).
2014	National government	Start reduction of maximum mortgage interest deductibility (52 percent in 2014) with 0.5 percent per year.
2016	European Union	The right for consumers to repay (part of) credit earlier than determined in a contract is enhanced. Lending institutions can still ask for a compensation fee, but not more than the actual financial loss.
2016	National government	Second income now counts for 50 percent when max loan is calculated (used to be 33 percent). This means that the borrow capacity of fiscal partners is increased.
2017	National government	Second income now counts for 60 percent when max loan is calculated.
2017	National government	Tax-free gifts of a maximum of 100.000 euros allowed when used for property purchase or renovation. Requirement parental-child relation is relieved.
2018	National government	Second income now counts for 70 percent when max loan is calculated.
2018	National government	Reducing mortgage tax deductibility sped up to 37.05 percent in 2022.

Source: Dol et al. (2010), Dutch Banking Association (2014), Ministry of Finances (2012a), Ministry of Finances (2012b), Ministry of Finances (2018) and interviews with key figures.

Table 3. Comparison mortgage rule changes.

	Canada	The Netherlands
Amortisation period	reduced from 35 to 25	reduced to 30 years
Max Loan-To-Value ratio	reduced to 95	reduced to 100
Income requirements/max housing costs	tightened	tightened
Credit limits	tightened	fewer possibilities to make exceptions
Other mortgage related changes	stop expansion of public securitisation programmes	lowering tax deductibility of mortgage interest
Policies that increase purchase/borrow capacity of households eligible for a mortgage loan	first-time home buyers programme set up (provides loans to households for the down payment)	reduction property transfer tax increase borrow capacity of two-income households tax-free financial gifts allowed when used for property purchase or renovation

Figure 2. Simplified roadmap to mortgage loans in Canada and the Netherlands after the GFC.

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