New Mortgage Rules for Canada
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 (it appears that 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.
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:
- Large Mortgages on Purchases over $1M
- Rental / Investment Properties
By 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. Time will tell how many people will be forced out of the market but it is suspected that it could be 15 to 20%.
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.
This is a complicated situation and can affect many people. If you have any questions or concerns please reach out, I’d be happy to clarify the new changes.