Tougher Rules And Higher Rates: What’s Next For The Mortgage Market?
New Regulations
It all began last October, when federal Finance Minister Bill Morneau announced several new mortgage regulations aimed at ensuring that Canadian borrowers only take on mortgages they can afford. This included enforcing that all insured borrowers qualify for loans based on the five-year posted mortgage rate.
These regulations were meant to slowly decrease prices as people were having trouble affording homes in “hot markets.” The regulations essentially caused the long-running seller’s market to slowly become more of a buyer’s market – or at least that’s where we thought things were headed.
Increase to the Benchmark Rate
On top of all this, Governor Stephen Poloz has lifted the benchmark overnight rate to 0.75 per cent from 0.5 per cent, which will only add more fear and confusion – and may slow things down further.
Too Many Changes?
The rate increase itself is not the issue. It’s a combination of everything at once. There is simply too much going on and too many measures for buyers to digest, causing them to put off purchasing a home altogether. We have already seen an increase in the number of buyers walking away from their deposit.
Waiting Too Long
Many buyers are also waiting too long before getting their purchase and sale/offer off to their lender or broker. This is not only harmful, but it will also cause a ripple effect if the transaction does not close. The longer a homeowner waits to get an approval, the greater chance the appraised value will not match the purchase price.
OSFI considering more changes
If all of this wasn’t already enough, last week the Office of the Superintendent of Financial Institutions (OSFI) announced that it is considering requiring lenders to ‘stress test’ uninsured mortgages.
These measures would be more specifically aimed at those who have ‘over-borrowed’ in the uninsured mortgage market. The regulations would require a stress test to qualify for an uninsured mortgage, and would make the qualifying rate for these mortgages the contract rate plus two percentage points.
A Loop Hole
Right now, there is a loop hole on the alternative side of lending, so the understanding is there as to why OSFI was looking to impose this new measure. We say it right away. Alternative lenders do not have to use the stress test rate to qualify homebuyers or owners. However, this does not mean that there needs to be a stress test rate either. Alternative lenders rates are already 100-200 basis points above the current fixed rate and their mortgages are not insured by CMHC.
OSFI decides to hold back for now
Unfortunately, it’s not up to us, it’s up to OSFI. For now, thankfully, OSFI has decided to hold back on these new measures.
If OSFI chooses to impose this “2% stress test rate” on top of the banks posted rate in the near future, it will have a huge impact on self-employed homebuyers and homeowners who need to refinance.
People with bad credit who own a home may no longer be able to renew or refinance, meaning they may be stuck on the alternative side or forced to sell.
What seems even more unfair is that self-employed homeowners and buyers would also fall into this bracket. I could understand the blemished credit category, but not self-employed people with good-credit. If just doesn’t make sense, and it’s safe to say there will be a lot of implications – and a lot of unhappy people.
Current Regulations and Rate Increase Here To Stay
Whether or not OSFI decides to implement these new policies, the fact of the matter is that the current regulations and the rate increase are here to stay and we simply need to adjust. However, it’s going to take some time.
What should you do?
Ultimately, your best bet as a homeowner or prospective buyer/seller is to try and inform yourself and/or ask questions when it comes to the changes in regulations before trying to purchase, sell or refinance your home. Remember there is more to consider than just great Mortgage Rates. Our experienced Mortgage Advisors can answer all of your questions, and make the home buying/refinance process a smooth and painless one. Contact us today!
Original Article – Huffington Post – July 17, 2017
