More Mortgage Changes To Come
It seems to be official that the Canadian government is stepping in again to tighten up regulations on the lending industries. This year we are looking at the removal of the 35 year amortization period, a reduction in the maximum loan to value ratio for refinancing of your home from 90% to 85% and more restrictions on Home Equity Lines of Credit. Of course these changes are only with regards to what the government is willing to insure through the CMHC and mostly effects people looking at refinancing and restructuring their personal debts.
So, how is this going to effect the real estate markets? My gut feel is not that much. Why? Relative to the changes last year, these changes do not effect a large portion of home buyers and how much they can qualify to borrow with in a mortgage. If there had been an increase in the minimum down payment required to purchase a home that would have had a significant negative effect on the markets. Last year we saw a lot of changes that directly affected the affordability of homes. There was the removal of the ability to get insurance for 100% financing, the increase from a 5% minimum down payment to 20% for undisclosed income financing for self-employed purchasers, and the changes that forced bank to qualify buyers based on the posted 5 year fixed rates instead of the discounted rates, unless the buyer was going to be getting the 5 year fixed mortgage and then the discounted rate could be used for qualifying for that product only. All of these changes directly affect the price range that buyers could qualify to purchase, especially for first time home buyers. This combined with the, incorrect, anticipation that the H.S.T. implementation was going to drastically increase the cost of buying a home; resulting in a huge increase in spring home sales and a flat summer and fall market, averaging out to a decent year for sales volume.
It is important to note that the new changes only affect mortgages that require CMHC insurance (Genworth and any other "high ratio" mortgage insurance company are likely to follow CMHC's example if they haven't already) and does not change requirements for mortgages on homes that have 20% equity or more. So, will we have a rush on sales in the next month or two, before the new rules take effect? Only if people believe, or are led to believe, that these changes are going to make it harder to get the mortgage that they need. But, as I said above these new changes don't affect most people's qualifications and definitely does not have the same scale of effect that the changes in 2010 had.
