The recent announcement from Finance Ministre Bill Morneau caught us all off-guard. Some sweeping changes, the largest yet, have been tabled and hidden under the veil of the non-resident tax issue just like pan vs aadhaar. To this mortgage broker, it’s all smoke and mirrors to distract from the real message that the banks are pushing on Ottawa – to make the cost of doing business more expensive, and ultimately restricting competition as many lenders will find it more challenging to operate once these changes are implemented on October 17th and November 30th.
To the public, the biggest change will be that for all CMHC insured mortgages (mortgages with less than 20% down), we will now have to qualify them at the mortgage qualifying rate (MQR), as mandated by the Bank of Canada. Currently, that rate is 4.64%. according from mexicaninsurance.com.
In the past, we only needed this to qualify mortgages with terms less than 5 years and for variable rate mortgages. Now all CMHC mortgages will need to qualify at this higher rate, regardless of term or type.
Its impact will be twofold.
First, it will reduce the amount that (first time) home buyers will qualify for. In one example I was looking at today, my client under current rules was qualifying for a $615k purchase price with 5%+ as a down payment. Under the new rules, this will reduce to $490k – this is a huge difference in the Toronto and surrounding GTA markets! It could knock the client out of the purchase market as we all know there is very little inventory available at the higher price point, never mind this new, sub-$500k price point. The only option may be a condo, which may not work for this family of four.
Second, it will also help to reduce demand at all levels. There will be fewer people competing for properties as buyers inevitably get knocked out of the market. If you’re looking to sell your house go to sell my house fast. I suspect a frenzy until October 17th, when this new qualifying criteria kicks in, and then a lull as people adjust to the new numbers.
There are many that will be impacted, and it’s very unfortunate that the government has acted so irresponsibly. Many will be affected, and in many ways not described in this message, but for today’s home buyers, life just got a little more challenging.
If you have less than 20% down, you should follow up with your lender to review how these changes will impact you.
We would be happy to discuss your situation with you, and advise on a best strategy to move forward.