- High-ratio borrowers (less than 20% down) will now be forced to qualify at the Bank of Canada’s posted rate for ALL mortgages and products. In a nutshell, this will reduce a borrower’s “buying power” by ~20% in some cases.
- Non-residents will no longer be able to claim the capital gains exemption.
- Rental properties and Business For Self mortgages will no longer be able to be insured by CMHC. This change will take effect November 30th.
- Conventional (more than 20% down) back-end insured mortgages will now have a maximum 25 year amortization, be forced to qualify at the posted rate (the same as point #1), and have a maximum purchase price of $1 Million. Conventional refinances will also no longer be permitted through insured mortgages.
This last bullet might be the strongest of them all.
In Canada, we have dozens of non-bank lenders who are all in the AAA lending business. Because they don’t have deposits from chequing and savings accounts like the big banks do, they have to sell off portfolios of mortgages to investors in order to raise more capital. In order to make these investments more attractive, the lenders “bulk” insure them through CMHC at their own expense. Most clients who put 20+% down on their purchase don’t even realize that their mortgage has been insured against default, just like a borrower who put 5% down, but in this case the lender pays the premium and not the client.
What this does is allow many really strong non-bank lenders to offer mortgage products to consumers and compete against the big 6 banks. It creates competition in the market, offers consumers choice and helps to keep interest rates low.
With the announcement of these changes, specifically point #4, many of our non-bank lenders will find it hard to compete in the AAA space for conventional, rental, and self employed business. Less competition in a marketplace results in less choice for the consumer and potentially higher prices (interest rates) for the consumer.
Housing values might slip a bit and mortgages will be more challenging to obtain.
Here is what I suggest:
- If you already own your home, don’t panic. Just like any market cycle, values will rebound.
- If you have a variable rate, don’t lock it in…. yet. I would like to wait and see some other external factors that are affected before predicting what it might do to interest rates.
- If you were thinking of getting pre-approved soon, do it now! It’s in your best interest to know what you qualify for pre- and post-October 17 so that you can make informed decisions.
- If you’re already pre-approved and are looking at homes, consider getting your offer in and accepted prior to October 17. As I mentioned above, these changes will affect buyers by reducing the amount of mortgage they qualify for by approximately 20%.
- If you don’t already have an experienced Broker working for you, find one. Now, more than ever, will knowledge and expertise become your greatest asset.
As with any change, we will adapt and move forward. The best thing we can do is be knowledgeable about how we might be affected, and figure out what we need to do in order to come out ahead.
Please don’t hesitate to reach out if you have any questions pertaining to your specific situation.