The Future of Canada’s Mortgage Industry
Effective January 1, 2018, new mortgage regulations set out by OSFI ( The Office of the Superintendent of Financial Institutions) will have a great impact on anyone looking to get into the real estate market or renewing their existing mortgage.
The changes to the B-20 Guidelines for mortgage underwriting practices are focusing on increased loan-to-value (LTV) limits and the qualifying (stress test) rate for uninsured mortgages (20% or more down payment). Also, there will be restrictions on specific lending arrangements like combining lenders and mortgage products.
Superintendent Jeremy Rudin says,
“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada.”
The new stress test will require uninsured mortgage borrowers to qualify at the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89%) or 2% above the contract rate. This will decrease a purchasers buying power by up to 20%, which means if your household income can afford a home for $800,000, you should be shopping in the $640,000 price range.
GDS (gross debt service) and TDS (total debt service) ratios are measures used to make sure a household can handle the mortgage payments, will be increased to mitigate risk and reduced loan defaults.
It will also be difficult for borrowers to renew and refinance with a different lender because they would have to re-qualify at the higher benchmark rate and the increased debit service ratios.
Some analysts believe that next year we’ll see a small decrease in new mortgage originations and because of these new rules, I think we might see a 10% drop in housing prices.
This is all good news for private lenders that do not rely on debt service ratios but mainly the value of the borrowers property.
These strict lending guidelines will only cause people to pay higher interest rates in the long run because their borrowing options will be extremely limited.
Be sure to contact a mortgage agent, your realtor and your accountant for more information. Look at all your options when making the right borrowing decisions moving forward into 2018.
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