Back when the crazy growth was occurring...I remember someone mentioning that Real Estate over a 25 year period tends to appreciate by like 7% a year on average over that type of time frame. But the bulk of that appreciation occurs in short time periods where the market explodes. If you miss those explosion time frames, you're lucky to match inflation with price appreciation in real estate.
Real estate in Canada is about 4.1% over the longer term. No one believes that in the years like 2005-2007, but its basically a little better than inflation.
Press release from Mortgage Professionals of Canada yesterday:
(long)
NSFW!
Quote:
By now, you will have seen yesterday's announcement from Finance Minister Morneau outlining mortgage insurance and qualification changes effective October 17 and November 30 respectively.
These changes were announced with no warning to our industry and, based on conversations we’ve had with a number of industry leaders, almost no consultation. The qualification changes requiring all ‘insured’ (bulk or high ratio) loans to meet 25-year amortizations and be qualified at the Bank of Canada benchmark rate (currently 4.64%) will force many would-be homeowners into the sidelines. The benchmark rate is generally 200+ bps higher than actual rates available in the market and will require anywhere from a 20-40% exaggeration of actual mortgage payments to be used to meet servicing ratios.
Additionally, the changes to mortgage insurance eligibility significantly impacts our monoline lenders. It has the potential to severely restrict their access to capital, their ability to compete with the traditional banks and the million-dollar purchase price limit effectively excludes them from the very markets that arguably have the greatest need for funding accessibility and availability.
These are just two of the issues in a very large list of complications these changes will bring to our marketplace.
Mortgage Professionals Canada is in communication with the Ministry of Finance and the Financial Sector Policy Branch and discussing the impact and unintended consequences to the marketplace these changes will bring. The mortgage broker channel originates approximately 33% of all mortgages in Canada, and approximately 50% of mortgages for first time buyers. We are an incredibly important segment of the economy and help maintain a healthy and competitive marketplace. We will keep you informed of our discussions and communications with government in the coming days.
If you have not yet seen the announcements, you can find more details here.
To summarize:
1. All insured mortgages will now need to qualify at the Bank of Canada benchmark rate (4.64%) instead of the contract rate offered on their commitment. This change is scheduled to come into effect on October 17, 2016.
2. Portfolio (‘bulk’) insurance must now meet the same criteria as those that are high ratio insured. This change is scheduled to come into effect on November 30. This means that amortizations greater than 25 years, rental and investment properties and homes with values greater than $1M can no longer be portfolio-insured.
3. Capital gains exemptions on principal residences will apply only to residents of Canada.
4. In addition, there is further discussion about ‘sharing in risk’ that is currently borne in large part by the three mortgage insurers. While high ratio customers and portfolio insurance funders pay for this risk, there is discussion about sharing in the cost of losses beyond just the mortgage insurers. This in and of itself could have significant implications. We will continue to monitor any discussion around this as well.
One of my biggest issues with these changes is that it will indeed impact refinances, as they will all be subject to re-qualifying at the benchmark rate. What about people that are wanting to refinance for the purpose of debt-consolidation? They would be MUCH better off consolidating high-interest credit cards into a low-interest mortgage rate, but this could deny them that chance.
I get what the government is trying to do, but I am strongly opposed to the method they chose. To not even consult with lending institutions, the Mortgage Professionals of Canada (whom as you can see account for 33% of all mortgages), is absolutely asinine if you ask me. Not to mention only giving 14 days. Monoline lenders are absolutely scrambling as we speak.
This is a huge win for the big 6 banks if this is carried out as planned. I've heard more than one person use the word "collusion" as well, between the gov't and the big 6.
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Press release from Mortgage Professionals of Canada yesterday:
(long)
One of my biggest issues with these changes is that it will indeed impact refinances, as they will all be subject to re-qualifying at the benchmark rate. What about people that are wanting to refinance for the purpose of debt-consolidation? They would be MUCH better off consolidating high-interest credit cards into a low-interest mortgage rate, but this could deny them that chance.
I get what the government is trying to do, but I am strongly opposed to the method they chose. To not even consult with lending institutions, the Mortgage Professionals of Canada (whom as you can see account for 33% of all mortgages), is absolutely asinine if you ask me. Not to mention only giving 14 days. Monoline lenders are absolutely scrambling as we speak.
This is a huge win for the big 6 banks if this is carried out as planned. I've heard more than one person use the word "collusion" as well, between the gov't and the big 6.
We did exactly that 2 years ago when our mortgage was up. My wife was on Mat leave at the time and it allowed us to consolidate big time. We likely would not have met the requirements under these rules.
Exactly. In a time where it's so well documented that household debt is at an all-time high (especially non-secured debt), this seems to be a poorly constructed solution.
Straight mortgage renewals won't be effected though? Only refinancing or moving to a new lender?
Sorry just trying to wrap my head around it.
Renewing with your current lender I'm sure will be fine, as you can always do that without having to re-qualify as long as your payment history is good, but I'm not sure what will happen if you want to transfer to another lender, as you are subject to re-qualifying in those cases. What if using the benchmark rate pushes your ratios out of line? You're then stuck with your current lender, which may not be ideal.
Another great example of how poorly communicated and thought-out this change is.
Just heard that almost all Monoline lenders are currently in Ottawa to get a handle on this. Quite the mess this has caused.
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Going to have an interesting impact on "serial" principal-residence exemption claimants, who include quite a few smaller developers. Making them report on their returns will definitely bring about more scrutiny of whether they are acting as a business or truly are using the homes.
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Well I wrote a letter to the minister. Maybe there will be some softening in the application. But the rashness of this decision, and the complete lack of consultation is just inexcusable. I'm not a broker, but if they were limited from competition with the banks we are in big trouble. The big 6 will drastically hike consumer rates no doubt.
Is this something that doesn't even get debated in the house?
Well I wrote a letter to the minister. Maybe there will be some softening in the application. But the rashness of this decision, and the complete lack of consultation is just inexcusable. I'm not a broker, but if they were limited form competition with the banks we are in big trouble. The big 6 will drastically hike consumer rates no doubt.
Is this something that doesn't even get debated in the house?
That's the most puzzling part...there are so many holes in this plan that it seems like it was a knee-jerk reaction implemented by one person.
The Mortgage Professionals of Canada (MPC) are the voice for brokers across the country and an important part of the housing industry. Brokers represent 33% of all mortgages, and 50% of first-time buyers. For them to not even consult with the MPC is crazy. That's why the word "collusion" has been thrown around a couple times, as again, it's a big win for the big-6. Less competition = bad.
I have to say if we, as a society, want to address high debt levels making it harder to bury your bad debt into a mortgage is a good thing, it should be bloody difficult to deal with debt, you should have to pay it or declare bankruptcy.
the problem we have is that it's to easy to borrow money, with low interest rates and an economy continually balancing on the edge of ruin
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What are the chances this gets a second look? The only press coverage on these changes has come from the foreign buyer angle. I believe these changes are going to hurt a lot of people, but right now it only seems to be brokers and realtors that see the writing on the wall. The media has not picked up on the real implication here, and they probably won't until they have living, breathing examples of people who have been burned.
Seems to me that someone should be making a lot more noise about this. Are the monoline lenders & broker associations planning to oppose this in anyway, or are they just resigned to trying to adapt?
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I'm surprised it's not getting more press than it is, but I don't think the masses truly understand the implications of it all.
The Mortgage Professionals of Canada (MPC) are in talks with the government, as are all the monoline lenders (who are currently in the Capital City). Will there be a second look? I'm going to say doubtful, as the government would basically have to admit mistake. I think it is a flat mistake what they're doing. Their intentions may be good, but the surrounding implications are not.
In the meantime, there have been some monoline lenders that have sent out emails saying they have effectively discontinued financing any and all rental properties. That is significant. I think I've received an email from 5-6 stating that is their current stance.
.....and as I'm writing this, I received another email from a monoline lender stating increases in rates post-November 30th on refinances for various different products, and the discontinuation of others.
So the monoline lenders and broker associations are both opposing this, and reacting.
I don't know, I think something like this was a long time coming. If portfolio insurance is as common as it sounds, the government is on the hook for a huge portion of the mortgages in the country, both high ratio and low ratio. And from what I understand, even ones insured privately are ultimately backed by the government and the company that insured them is only responsible for a 10% deductible in the case of a default.
So essentially what has been happening is that taxpayers have been subsidizing both low rates for consumers and lender profits by taking on virtually all the risk of the mortgages. It hasn't caused a problem yet, but if interest rates go up and a bunch of people can't afford the payments, the government is on the hook for a lot of money. It'd be a pretty classic case of privatized profits and socialized losses if that happened.
Consumer rates will likely go up as a result and fewer people will have access to funds, but that's not necessarily a bad thing. The same thing happened when they got rid of 40 year amortizations and I don't think people are clamoring for that to return. In fact, at current rates the effect on affordability from going from 40 year to 30 year amortizations is actually greater than the effect of using the BoC rate compared to a 5 year fixed rate. At a 2.5% interest rate, a 40 year mortgage would allow you a 20% higher principal than a 30 year one and a 36% higher principal than a 25 year one. On the other hand, a 2.5% qualifying rate only gets you about 14% more in compared to a 4.64% one on a 25 year mortgage.
I do agree that anything that consolidates the power of the big banks isn't a good thing, so I don't like that aspect of it. But I also get why the government wants to have more stringent rules if taxpayers are assuming almost all of the risk in the event of a bubble bursting.
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My personal experience dealing with the mortgage for our house was that banks are looking to take advantage of you. "Oh we can easily bump this up another 50k to put that loan in here so you can pay 25 years of interest instead of 3, and then you have extra cash to do your yard and buy furniture for your house." Are you kidding me? Like are you ####ing kidding me?
And at the end of it all he goes and here is your pre approved line of credit, My what? Its pre approved don't worry just sign. I don't want that. WHY WOULDN'T YOU WANT IT? ITS PRE APPROVED!!! Ohhh ok captain idiot, let me just help you shovel that debt on top of me.
If they are putting rules in to protect people from themselves, all the more power to them. But again, I'm not a professional in this area, just speaking off of my own experience.
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Also, the Gross Debt Service and Total Debt Service ratios that are allowable under these new rules for insured mortgages seem pretty high at 39% and 44% respectively, so that could potentially create some room for movement to allow higher loan amounts and soften the blow of these rules.
For instance, if you have $100K in family income and $500 a month in property tax and heating costs, you'd qualify for roughly $535K with a 2.5% qualifying rate and a GDS of 35%, which is I believe what was the maximum CMHC ratio. It'd be more like $510K if you wanted to be at 33% which is a pretty accepted standard. With a 4.64% qualifying rate and a GDS of 39%, you'd be able to get about $490K in a loan, so not a huge difference compared to before. On paper, you'd have a 39% GDS ratio at the qualifying rate, but your actual GDS ratio would be in the 32% range.
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My personal experience dealing with the mortgage for our house was that banks are looking to take advantage of you. "Oh we can easily bump this up another 50k to put that loan in here so you can pay 25 years of interest instead of 3, and then you have extra cash to do your yard and buy furniture for your house." Are you kidding me? Like are you ####ing kidding me?
And at the end of it all he goes and here is your pre approved line of credit, My what? Its pre approved don't worry just sign. I don't want that. WHY WOULDN'T YOU WANT IT? ITS PRE APPROVED!!! Ohhh ok captain idiot, let me just help you shovel that debt on top of me.
If they are putting rules in to protect people from themselves, all the more power to them. But again, I'm not a professional in this area, just speaking off of my own experience.
