However, Wednesday March 20, 2013, saw a reversal in Manulife’s plans when the bank announced that “after consulting with the Department of Finance,” they would no longer offer the lower rate.
Finance Minister Jim Flaherty opposed the move by BMO earlier this month. Wednesday he asked one of his staff call Manulife to express his disapproval, resulting in the bank’s cancellation of the change.
Flaherty deplores what he calls “race to the bottom” practices and continues to oppose moves that would encourage Canadians to further indebt themselves.
According to the Minister, Canadian household debt is at an all-time high at 165% of disposable income.
Criticism from the Opposition
The Minister and the government are coming under strong criticism for their perceived interference in free market practices.
“It’s banana republic behavior,” said NDP leader Tom Mulcair. “Since when do you use political weight to push back on financial institutions responding to a market parameter that’s totally legal?” He called Mr. Flaherty’s actions “unacceptable in a free and democratic society.”
Last year, Mr. Flaherty lowered the borrowing term to 25 years from 30 and put in place other measures to remove pressure from the housing market. He maintains that keeping mortgage rates high will help reduce Canadian household debt.
So far in 2013, we have seen a slowdown in the housing market. It remains to be seen what effect an enforced slowdown will have on the market.
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