New Buyers and Mortgages
Industry-expert estimates as to how much mortgages carrying costs are set to rise vary from 8-10%. Unfortunately, new buyers are going to be hit the hardest.
The Bank of Canada itself has stated that such increases will leave approximately 10% of Canadians unable to qualify for conventional mortgages in 2018. Though current owners are relatively immune.
Those already in a mortgage product, however, are offered greater protection from interest rates. They also have the option to lock-in their rate, if in a variable-rate mortgage.
With mortgage rates expected to vastly outpace the cost of living and new mortgage rules in effect. Conventional mortgages are becoming an increasingly difficult product to qualify for.
We Jumped the Shark!
Based on these factors and more, most financial experts are officially ‘calling’ the housing market. It has jumped the shark and expects to cool down relatively quickly.
“We anticipate some moderation in home sales over the forecast horizon, as rising borrowing costs and tougher mortgage-qualification criteria lead to some further erosion in affordability,” Scotiabank
Recently, Royal Bank forecast in its own report that affordability has been circling the drain for eight consecutive quarters. It is at its lowest level since 1990.
Having said that, changes won’t blanket Canada entirely but will depend on regional trends. While all markets will likely be affected, outside of Ontario and British Columbia, conditions may be more stable. Housing affordability trends have generally been less flighty than areas that have seen wild increases in recent years.
So What’s a New Buyer to do?
It seems the Bank of Canada is hedging their bets that disqualified buyers will either vastly compromise their expectations in terms of home cost. You can simply wait until they have saved enough for healthier stress test result.
In Reality, ‘Life, ‘as Jeff Goldblum Would Say, ‘Will Find a Way’
For mortgages, that means private lending channels. Luckily for new buyers, movers and shakers in the mortgage industry are preparing for the industry changes. They are finding new solutions and products to offer clients.
“Everyone deserves the opportunity to build equity.” says Senior Mortgage Broker Clinton Wilkins “and private lending, though not for everyone, can be a great way to do that”.
As always, the market will adapt to new rules with new solutions to fill any gaps that exist. Throwing caution to the wind and rushing into private lending isn’t the answer, either. When in doubt, contact your trusty, local, unbiased professional.