TORONTO – The head of Canada’s federal housing agency says regulators should explore the possibility of raising the minimum down payment required on a home as a way of easing affordability and reducing risk to the financial system.

“Politicians are tempted to help first-time homebuyers enter the market, but low down payments may be part of the problem, adding to affordability pressures and macro-economic vulnerabilities,” said Evan Siddall, president and CEO of Canada Mortgage and Housing Corp.

During a speech at the Bank of England’s offices in London Friday, Siddall said that low minimum down payments fuel housing demand and lead to higher housing costs.

That ultimately ends up hurting the young, first-time homebuyers that such policies were purportedly designed to help, Siddall said.

You should be saving for more than just a down payment »

Boosting the minimum down payment could help offset the effects of rock-bottom interest rates, which have encouraged borrowers to take on excessive mortgage debt, he added.

The federal government has introduced a number of measures aimed at curbing risk in the real estate market.

Most recently, Finance Minister Bill Morneau announced that stress tests will be required for all insured mortgages to ensure that borrowers would still be able to make their mortgage payments if interest rates rise or their financial situations change.