UPDATE Oct 5 - More to follow but thought I would get this out for the time being. -----
On Monday October 4th, Canada's Federal Finance Minister Bill Morneau has blind sided not only the Real Estate, Mortgage Industry and consumers... it appears that other stakeholders were surprised at the announcement too (insurers and lenders were not consulted and unaware of the impending change).
The Department of Finance (DoF) was looking to slow down the housing market and they may have just done it with these changes, in a big way. The rules will hit the mortgage market hard, but consumers will take the brunt of it. The two big changes are:
1) Effective Oct. 17, the qualification rate (currently today at 4.64%) will now apply to all insured mortgages (regardless of LTV, which is not the case today).
2) Regulators are banning a wide array of mortgages from being insured, effective Nov. 30 (see below).
In Calgary, Edmonton and pretty much most of Alberta, the timing of this announcement could not have come at a worse time. It's like getting kicked in the teeth while you were already down. This change will make homeownership less attainable for the marginal borrower, which is often younger Canadian first-time home buyers.
Consumer Choice
These changes are also going to take away choice for consumers as the majority of lenders that compete with the banks are now going to have a tough time with the following due to the changes for mortgages with more than 20% down payment or equity:
- Refinances
- Large Mortgages on Purchases over $1M
- Rental / Investment Properties
Effective Nov 30 the above changes will occur. Most people do not realize that many lenders (including banks) obtain bulk or portfolio insurance from CMHC, Genworth and Canada Guaranty on mortgage when more than 20% is applied. To understand or read more, click on read
Changes to Low-Ratio Mortgage Insurance Eligibility Requirements
They are forcing all insured borrowers to qualify based on the posted rate of 4.64% instead of the actual negotiated rate, the changes are the equivalent of a jump of 2% in mortgage rates (Mind you, a 200+ bps hike in the next five years would probably cause a recession, so it’s unlikely at best.). Time will tell how many people will be forced out of the market but it is suspected that it could be 15 to 20% (mostly first time home buyers).
It is still too early to determine the full nuts and bolts of the changes as the lenders and insurers are still reviewing the changes and will likely be planning a meeting with Department of Finance (DoF) to raise concerns and clarification on the rules. This could spell trouble for consumer choice and competition for mortgage products, rates and overall solutions.
There are a few more other changes that I will post as the week goes on but wanted to start with the most impactful items. If you have questions, please reach out, we would love to assist.
Breaking: Effective Oct 17 - Qualifying for Mortgages Changing
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