Happy Anniversary Mortgage Rule Changes
July 11, 2013 | Posted by: Mike Garganis
It’s been a year since the mortgage rule changes took effect, and brokers have felt the impact not only on their business, but especially their clients.
We are finding a lot of people no longer qualify based on 25 years amortization or have to cut the purchase price back, which is easier said than done, depending on the market where you intend to purchase. The new regulations have impacted the consumers who are purchasing and do not have the 20 per cent down payment.
If Flaherty’s intention was to push some of these first-time buyers to the sidelines, he has succeeded. The self-employed Canadian has taken it on the chin in the last 12 months as the original rule changes and subsequent OSFI changes have tightened the screws on those in business for themselves.
The major restrictions put in place by Finance MinisterJim Flaherty were to cap amortizations at 25 years, and limiting refinancing from 85 to 80 per cent of LTV.
The new rules have limited the various opportunities for the consumer that have forced many of them to take a fixed rate term of 5 years or longer so they can avoid the dreaded MQR (mortgage qualifier rate) currently at 5.14%, which limits the total credit available to the first-time homebuyer by 25% or more. The major impact of the new rules have affected the self-employed as the insurers are asking for more supporting documents to substantiate their stated income—CMHC requires proof of income for BFS clients that have been in business for two years or longer, whereas Genworth doesn’t have this requirement but the income must be reasonable for their particular profession.
The Toronto condo market took a direct hit, according to Shaun Hildebrand, a senior vice president of Urbanation and former market analyst with CMHC, as first-time homebuyers flocked to the condo market instead of buying, pushing average rents in the GTA to a record $1,856.
For the first time in a long time, we’re seeing rent levels grow stronger than resale and new condo prices. Numbers from Urbanation – a leading condo analysis firm – show that new condominium sales were down 55 per cent for the first quarter of this year, compared to 2012.
Flaherty’s move to tighten amortization rules was the finale of a continuing campaign to cool the housing market, as Ottawa acted three times to rein in the maximum mortgage term after the CMHC briefly started insuring mortgages with 40-year terms in 2006.
Flaherty brought the amortization limit down to 35 years, then 30, and now where it sits at 25 years.
Other rule changes included a cap on the maximum gross debt service ratio at 39 per cent, and the maximum total debt service ratio at 44 per cent for those looking to get CMHC insurance.
In addition, Flaherty limited CMHC insurance to homes priced less than $1 million.
Economists agree that GTA housing prices have leveled out, while Vancouver prices are down an average of 5 per cent, with the average Canadian housing price expected to drop only 2 or 3 per cent in the coming year.
I guess the quesiton is... are more changes coming?
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