A lobby group for mortgage professionals warns that efforts to curb household indebtedness are preventing first-time buyers from getting mortgages, impacting the resale market, and may harm the economy.

The Canadian Association of Accredited Mortgage Professionals (CAAMP) says that its latest survey of more than 2,000 Canadians found weaknesses in the mortgage market that could undermine Canada’s economic recovery. It says that data from prospective first time homebuyers who have been shut out of the market by the tightening of amortization rules, “is troubling”.

“This smaller number of first time buyers is already impacting the resale market, which in turn threatens to dampen economic activity more broadly,” it adds.

The report finds that, since the most recent round of mortgage tightening came into effect in July, there has been a drop in housing resale activity. Also, approximately 17% of high ratio mortgages funded in 2010 could not be funded today, including 11% of prospective high ratio homebuyers who can’t qualify under the new 25 year amortization rule.

The CAAMP also says that it is not only first time buyers who are affected. “Reduced activity at entry levels means that move-up activity will also be gradually impacted, because potential move-up buyers will find it more difficult to sell their current homes,” it says.

“Our most recent survey report demonstrates once again that the vast majority of Canadian mortgage holders, whether they are first time buyers or long time homeowners, are acting responsibly when it comes to reducing their mortgage indebtedness,” said Jim Murphy, president and CEO of CAAMP. “Our concern today is the number of growing first time buyers who are now unable to get a mortgage. We worry that this is having a dampening effect on what was an already cooling market and we hope policy makers will give some thought to addressing the needs of this key sector of the market.”

“The housing resale numbers behave like a canary in the mine for us,” said CAAMP chief economist, Will Dunning. “Since the government tightened mortgage accessibility for the fourth time this past July we’ve seen a drop in resale activity that I think foreshadows an overall decline in the housing market. My concern is that a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole.”

The report examines possible causes for the recent drop in housing resale rates. It says that an estimated 11% of high ratio homebuyers are especially hard hit since the amortization periods were cut from 30 years to 25 years. Some of these buyers can become re-qualified to buy homes by saving for larger down payments, but it would take these buyers an average of 3.5 years to re-qualify, assuming interest rates and house prices do not increase, it says.

The survey also found that those holding mortgages are comfortable with their debt; a majority plan to pay off their mortgage in less than 25 years; and at least one-third are taking advantage of low interest rates to accelerate their payments.

The report is based on information gathered by Maritz Research Canada in a survey of more than 2,000 Canadian consumers in October.