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October 17th, 2016 is day zero for the Canadian Mortgage Industry

hi-ratio-mortgagesHi ratio mortgage home buyers rushed to beat Oct 17 rule changes

Today is the first day Canadian home buyers with less than 20% down payment find themselves with significantly lower purchasing power. Brokers estimate the impact will be to reduce your budget by around 20%.

Important!

That is because all new hi-ratio mortgage applications are subjected to a “stress-test” against the possibility of higher interest rates in five years time

Before today, you did not have to pass this test if you were applying for a five year, fixed rate mortgage. Terms of fewer than five years, or variable rate mortgages already had this test.

It will be interesting to see what happens next. For sure a percentage of first time buyers will now be priced out of the market in the short term. If they want to buy they will need at least one of the following:

  • Set their sights on cheaper housing, likely further away from the place of work or the community they wish to live in
  • Give up on buying for the foreseeable future, and continue to rent. ( Expect the market for rental and investment properties to be extremely hot)
  • Hope the ‘Bank of Mom and Dad’ can help out with either co-signing or towards a larger down payment. Thx to SicTees for the image.
  • Save up harder and longer.

bank-of-dadMeanwhile these people will be hoping the market does not continue to rise. In fact they are the few who are hoping for a market correction. Many more want to hang on to their equity – it will be an interesting time in the near term. Long term, have no doubt, if you can somehow wangle it, you do want to be a homeowner.

But if you thought the market would instantly auto-correct when the federal government announced major mortgage rule changes two weeks ago, in fact here in the GTA the opposite has happened. Many realtors reported a very hot market for condos, town homes and semi-detached home sales in the past two weeks.  

This is because buyers with less than 20% down payment found their purchasing power decreased by more than 20% when they woke up this morning. These are often first time buyers and others entering ownership from the tenant ranks.

Last night a couple we know won a highly competitive multi offer auction late in the evening. They were thrilled on Friday the 14th of October when it was announced by some lenders that home buyers can qualify for a mortgage under the old rules as long as their Purchase and Sale Agreement was signed and dated no later than October 16th. Even if the mortgage application goes in, this week, next week, next month!

Important!

If you are a very recent buyer, talk to an experienced mortgage broker right away. You may find you are eligible for a far better mortgage than you envisioned. It might even mean “YES” when before it was “NO”

mortgage-brokers-and-real-estate-agentsI have been speaking to many real estate agents, mortgage brokers and economists to get a feel for where the market is going.

The general mood has morphed from stress and anxiety two weeks ago to a sense that the real estate market has been highly resilient through many changes in the past eight years, and it will prove so again – the economic fundamentals being so strong.

That is certainly true in Vancouver and Toronto, but we should be concerned about smaller regions where housing affordability has taken a real whack from the federal government.

Regarding interest rates, Todd Hirsch, Chief Economist of Alberta Treasury Branches said today at the Invis-Mortgage Intelligence company meeting in Quebec City that he expects the Bank of Canada Rate to stay stable for a long time yet. In fact, he would not be surprised if we mortgage rates go a bit lower still.

Anyway, let’s face it, we are all figuring this stuff out together as we go along. If you are looking to buy a home in the next year or so, or contemplating a possible refinance, it’s a good idea to stay on top of these changes and the ongoing impact they may have on you. And make sure you deal with professionals who are totally on top of it all. More than ever, knowledge and wisdom is of paramount importance.

Related article: Will the new mortgage rules mark the end of an era, by Ross Taylor October 04, 2016

Related Article: Why first time buyers should not throw in the towel, by Sean Cooper October 05, 2016

Related article: Opposition to Ottawa’s new housing rules, The Financial Post, October 11, 2016

Related information: Mortgage Professionals Canada (MPC) announced some of the new rules had already been softened. With a massive industry lobby effort underway, it seems safe to say you can expect more modifications to come. Stay tuned! On Friday, October 14th, MPC announced:

Effective today, only borrowers with less than 20% down payment are required to qualify at the Bank of Canada rate. Down payments greater than 20% will not have to qualify at the BoC rate until November 30. This change effectively provides an additional six weeks for lenders who rely on portfolio insurance for low ratio mortgages to find alternate means to finance their activities.

We are encouraged by Friday’s announcement which represents a positive first step. It is clear that the government is not only listening, but more importantly, reacting to our concerns. We have been in regular contact with Minister Morneau’s office since the announcement and look forward to continuing our efforts with government officials to help influence positive changes that benefit our members.

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