I wanted to reach out this weekend to talk about the proposed mortgage rules tightening up on June 1st given you might have a lot of questions. As you know the media always likes to grab onto the latest soundbite and they most definitely love negative news more than the positive.
Canada’s top banking watchdog, The Office of the Superintendent of Financial Institutions (OSFI) is taking another shot at overhauling its stress test on residential mortgages by increasing the stress test to 5.25%.
If you don’t want to read the whole article but wondering if it will fix anything just read the below 3 questions:
- Will the qualifying rate that the government is proposing fix runaway housing prices? No.
- Will it slow down the multiple offers and condition free craziness on offers? No.
- Will it create a smokescreen so that politicians and bureaucrats are doing something? Maybe.
The proposed changes only target those clients putting more than 20% down on a purchase or refinancing a property. The overall mortgage money that the borrower would have qualified before this proposed change happens will be approximately 5% less. Thus, restricting borrowing slightly for the most well-qualified group of borrowers and buyers. To put it into perspective when the current stress test was first enacted on January 1st, 2018 it reduced borrowing power by 35%, so in comparison this change is marginal.
If you’re a first-time home buyer who’s purchasing a property under $1million then this change won’t affect you. Just a reminder, the minimum down payment in Canada depends on the purchase price of the home:
- If the purchase price is less than $500,000, the minimum down payment is 5%.
- If the purchase price is between $500,0000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
- If the purchase price is $1,000,000 or more, the minimum down payment is 20%.
This proposed change will not come into play for credit unions or many of the mortgage finance companies that I use as OSFI, really only hold sway primarily over the banks. The impact of this proposed change will likely only affect those that have just enough down payment saved for their $1million+ property whose ratios are extremely tight.
Although just a theory, if you’re wondering why they’re only proposing one tweak it’s likely because the pandemic has stripped away the illusions of a housing market driven by foreign investment while the original stress test removed the illusion of over indebted Canadians who were borrowing more than they could afford. All these distractions – foreign buyers, speculation taxes, vacant home taxes are used up and none of these have done a thing to slow down the appreciation of real estate in Canada. Only one thing will slow it down…and that’s increased supply.
A word of caution if you’re in a pre-sale contract buying preconstruction where you barely qualify as changes like this can really jam things up 1 or 2 years down the road when it’s time to complete.
As little as this proposed change is and it’s almost certain to happen this adjustment could impact your own personal situation significantly. But for the most part it’s a whole lotta news about nothing and will likely not slow down the madness.
On another note, I’d like to share with you all that aren’t on my social media that I have chosen to take part in the LOVE-19 campaign. Real Estate leaders all over Canada have been challenged to purchase 19 gift cards within their local communities from those small businesses that have been affected by COVID to share with friends, family and clients.
My first LOVE-19 gift card is to Kaboodles Toy Store with 3 locations around Vancouver and given that you’re already part of my VIP Club you’ll all be entered in all 19 weekly draws. The first GC winner will be announced next Saturday!
Enjoy the rest of the sunshine and look forward to connecting soon.
Stay safe and healthy,
Kimberly