What do the Mortgage Changes Mean For Buyer and Sellers?
The office of the Superintendent of Financial Institutions (OSFI) has released revised guidelines that state that all mortgages will have to go through “stress tests” as of January 1, 2018. Buyers must now qualify for mortgages based on the Bank of Canada’s five-year benchmark rate (4.89% as of today) or an additional 200 basis points on the contracted rate (2%). Last Fall a similar rule was passed for those putting less than 20% down.
Who Will This Effect?
About 46 percent of mortgages outstanding in Canada are uninsured, meaning the impact will be significant.
- Buyers putting down 20% or more. (typically, homeowners that are upsizing and investors.) Buying power will be reduced by 21%
- “A household with an annual income of $100,000 and a fixed-rate 25-year mortgage at 2.84 percent can afford a house worth up to $726,145 currently, Ratehub calculated.Under the new rules, the same household would be able to afford only $573,791, a reduction of more than $150,000.
- Sellers whose homes are worth more than $1,000,000.
How Will This Affect the Real Estate Market?
The impact of this change will slow the real estate market however, it is too difficult to predict by how much. The Vancouver market was already starting to overheat again, so, it is a logical assumption that if nothing had changed that we would have seen the Toronto market start to overheat in the New Year. With this change, we may see the Toronto market pick up but at a slower pace than expected without the mortgage guideline changes.
Tips/Suggestions for Those Affected?
If you are planning on upsizing in the New Year go to a mortgage broker and lock in at the lower rate. Once you are locked in, you typically have 90 days to purchase a home at this rate. If your home is over $800,000 you may want to consider selling this year as opposed to waiting until 2018. Click here for a free in-home evaluation.
These government forced changes do not really address the real issue; high demand and short supply. It is like trying to plug the leaking dam with bubble gum, it a temporary fix.
What do the Mortgage Changes Mean For Buyer and Sellers? Contact the GoWylde team if you have any questions about these changes!
Source: Changes to Mortgage Underwriting Guidelines | Brian DePratto
Source: Proposed Mortgage Rules Will Reduce Your Home-Buying Power By 21%: Report | Daniel Tencer