New mortgage rules will help keep Canadians from getting too far in debt and putting the economy at risk, says Bank of Canada governor Mark Carney.

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The central bank governor told a business luncheon Thursday in Halifax that Canada’s economy relies too heavily on household spending to generate growth.
 
Historically low interest rates, coupled with a stable banking system, have contributed to the spending spree, he said.
 
“Our economy cannot, however, depend indefinitely on debt-fuelled household expenditures, particularly in an environment of modest income growth,” Carney warned during a speech to the Atlantic Institute for Market Studies.
 
Mortgage debt, in particular, accounts for an “unusually elevated share of the Canadian economy” and it continued to grow, relative to GDP, in the first quarter of this year, he said.
 
The central bank governor called the mortgage changes, unveiled earlier in the day by federal Finance Minister Jim Flaherty, “prudent and timely measures.”
 
The new rules adopted by Canada Mortgage and Housing Corp. will reduce the maximum term of insured mortgages to 25 years from the current 30 years and will end insurance for homes costing more than $1 million.
 
The measures will also limit refinancing loans to 80 per cent of the value of a home, from the current 85 per cent.
 
The latest moves are part of a string of initiatives undertaken recently by the federal government to slow the accumulation of debt by Canadian households, which reached a record 152 per cent of income in the fourth quarter of last year.
 
Thursday’s announcement marks the fourth time Ottawa has tightened mortgage rules since 2008.
 
The changes come at a time interest rates are expected to start rising.
 
Carney indicated that may happen soon.
 
“Some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the two per cent inflation target over the medium term,” he said.
 
But he didn’t say rates will climb this summer.
 
“The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments,” he said.
 
Carney is slated to deliver his latest economic forecast on July 18.
 
He said the Canadian economy continues its modest advance, despite concerns about the European debt crisis and a slower recovery in other countries.
 
In the spring, the bank predicted that growth would average 2.1 per cent nationally this year.
 
While the global outlook remains uncertain, the key to economic turnaround is building a strong, open financial system, the central bank governor said.
 
“In order to restore balance in the system, we need to discard the myth that finance is self-regulating and self-stabilizing. We need to recognize that financial policy making can no longer be concentrated at the national level.”
 
Carney said that reform agenda is making progress but “not assured.”
 
Despite the ongoing national and global challenges, Carney told reporters he was encouraged by the Atlantic Canadian outlook.
 
“There are a lot of quite positive things happening,” he said during a news conference after his speech.
 
“Layered next to them, there are some well-known challenges, which include demographics and just the fact that the global economy is a more challenging place as well.”
 
Carney, who met with business leaders while in Halifax, said there have been “dramatic improvements” in productivity in Atlantic Canada in recent years, which occurred at the same time the region had to adjust to the soaring loonie.
 
He mentioned the development of new export markets in such sectors as the fishery and aerospace, while energy projects, including the region’s offshore oil and gas sector, are also creating new opportunities.