Last October, and again in early 2017, both the federal and Ontario provincial government introduced new mortgage rules to calm Canada’s hot housing market and make sure borrowers can actually afford their mortgages.
What impact – if any – have the new mortgage rules had on housing prices?
As far as last October is concerned, according to an article published in the Huffington Post, there has been no evidence showing any changes to the markets the new rules were meant to target. However, the new rules have only compounded problems in weak-performing regions, according to some experts.
Are Canadians having a harder time buying a home due to the change in mortgage rules last year? Both the previous Conservative government and the current Liberal government at the federal level have continued to tweak and tighten Canada’s mortgage rules. One major change was raising the minimum down payment for homes over $500,000. Many of these changes are in response to the effects of years of low interest rates and changes in the way the market operates.
Another of the new rule changes is applying a mortgage rate stress test to all insured mortgages. The federal government now requires all high-ratio insured homebuyers to qualify for mortgage insurance at a rate that is greater than their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate.
A further change was with regard to bulk mortgage – or portfolio – insurance. Now lenders must apply all high-ratio rules to low-ratio portfolio-insured mortgages. Lenders insuring mortgage loans using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages.
The new criteria for low-ratio mortgages means these four types of mortgages can no longer be bulk-insured:
- rental properties
- properties that cost $1 million or more
- mortgages with amortizations of more than 25 years
- mortgage refinances in their entirety
Finally, the government plans to consult on lender risk sharing, and to look at possible changes to income tax regarding the principal residence exemption and disposition of real estate. Some alternative lenders have reacted by announcing that they will be suspending operations amid new mortgage rules.
Read more about the changes on Finance Canada’s website here: https://www.fin.gc.ca/n16/data/16-117_2-eng.asp
What impact, if any, have the new rules had on your business?