By Rod Nickel

WINNIPEG, Manitoba (Reuters) - Bank of Canada Governor Stephen Poloz on Monday said the housing sector was solid despite a series of challenges and called for a more flexible mortgage market to help make the country's financial system safer.

The central bank has kept interest rates on hold for six months as it studies reasons for a recent economic slowdown. These include the effects of previous hikes on the housing market, tougher mortgage rules and measures introduced to cut speculation in the major cities of Toronto and Vancouver.

"The fundamentals of the Canadian housing market remain solid, and growth will resume once the effects of reduced expectations for house price inflation and the new mortgage guidelines have been absorbed," Poloz said in a speech in Winnipeg.

He made no mention of interest rate policy.

Canada's central bank has raised rates five times since July 2017 but has remained on the sidelines in its last four decisions, including on April 24 when it removed wording around the need for future hikes.

The mortgage system was working well but could benefit from an imaginative approach, Poloz suggested on Monday, such as encouraging more people to take out longer fixed-rate mortgages.

He said 45 percent of all mortgage loans had a fixed rate and a five-year term. Just 2 percent of all mortgage loans issued in 2018 were fixed-rate loans with a term of longer than five years.

Longer terms mean consumers face the risk of having to renew at higher rates less often and also can build up more equity in their homes between renewals.

"I can see how longer-term mortgages can contribute to a safer financial system and more stable economy," he said.

Poloz also said it could be helpful to develop a private market for mortgage-backed securities which could be a more flexible source of long-term funding for uninsured mortgages.

These securities could become another option for investors but would have to be designed carefully. Poloz noted that mortgage-backed securities were at the heart of the sub-prime debacle that preceded the 2008 financial crisis.

Homeowners in Canada cannot currently buy mortgage insurance for houses that cost more than C$1 million or if they are buying a second property.

(Writing by David Ljunggren; Editing by Paul Simao)