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Toronto-Dominion Bank this week raised its prime lending rate for variable rate mortgage customers to 2.85 per cent from 2.7 and some commentators say the move can be traced to stricter mortgage regulations making it more expensive for the bank to loan money.

The federal government introduced new rules on Oct. 17 that tightened mortgage regulations for loans backed by Ottawa. Among the key changes is a requirement that consumers with loans tied to federally backed mortgage default insurance qualify based on the posted rate for a five-year fixed-rate loan, which is now 4.6 per cent.

“There’s no doubt there was some rush to get in ahead of the rules,” said Doug Porter, chief economist with Bank of Montreal, adding that there is a supply imbalance in the Toronto market contributing to rising prices. “I’m also pretty much on record saying (foreign buyers) are having an impact. It might not be quite as big as Vancouver in the past but it is significant (in Toronto).”

Jason Mercer, director of market analysis for the Toronto board, said listings have started to increase but there just isn’t enough supply in the city to satisfy demand.

“Until we experience sustained relief in the supply of listings, the potential for strong annual rates of price growth will persist, especially in the low-rise market segments,” he said.

The boom in sales in Toronto may be far from over. On the Friday before the new mortgage rules went into effect, the government made some moderations, which grandfathered existing deals and also opened up a window for deals to be done by the end of this month as long as funding is in place by May.

Paula Roberts, a Toronto-area mortgage broker, said even she is shocked by what people are paying, but doesn’t think the market is slowing down soon especially given the boost she expects this month.

“You are able to get about 20 per cent more funding (under the old rules) so that’s a pretty big swing. I guess we’ll celebrate Christmas early,” said Roberts, referring to the mortgage changes being final in December.

gmarr@nationalpost.com

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