Fears that new mortgage rules introduced by the federal government could make it more difficult for borrowers to secure a mortgage are becoming a reality.
As predicted by reporters and real estate experts, the new mortgage rules introduced by the federal government in October 2016 are indeed making it difficult for some borrowers to obtain financing.
The New Rules
- A mortgage rate stress test is mandatory for all insured mortgages
- New restrictions on providing insurance for low-ratio mortgages are being imposed
- Reporting rules for the primary residence capital gains exemption have been updated
- Consultations on lender risk sharing by the federal government are being initiated
The new rules were put in effect in the interest of protecting the public and economy from the potentially dangerous practice of high interest or high-risk borrowing.
The mortgage rate stress test, as predicted, has not made a significant dent in the number of first time home owners able to qualify for a mortgage. Uninsured mortgages tend to be less risky, as owners prove their access to capital through their down payment.
That said, the rules put in place to protect the majority of borrowers leave some people just short of qualifying under new regulations. These aspiring homeowners may find themselves turning to alternative lenders in the absence of traditional funding, taking loans at 7% and 8% interest.
While I’m a fan of alternative lending in the right instances, it’s simply a shame that clients with immaculate credit may end up borrowing at these rates.
Meanwhile, Finance Minister Bill Morneau remains positive about the overall effect the new rules are having for Canadians-
“A decline in the share of new insured loans issued to highly-indebted borrowers suggests that the quality of credit is improving in the high-ratio mortgage market. This development helps to ensure that Canadians are taking on mortgages that they can afford.”
It’s clear that something had to be done to protect the Canadian housing market; it still remains to be seen if the new rules are that something.
If you’re concerned about how the new mortgage rules may limit your current or future homeownership decisions, get in touch with an unbiased mortgage broker today to explore your options.
My door is always open.