Interest Rate Update – BOC Offers A Hint of Optimism
May 24, 2017
Rate Update – I’ll Take That Back Now Thank You
July 12, 2017
As you’ve no doubt heard, the federal government is looking to, yet again, make changes to the mortgage rules. The two aspects of the proposed changes will have a SIGNIFICANT impact on how much borrowers can qualify for, and may also require an increase in down payments. From now until August 17th, the government will be reviewing input from all stakeholders. I encourage you to email them at B.20@osfi-bsif.gc.ca.
Here is an overview of how the changes will effect your ability to qualify for a mortgage.
All buyers will now have to qualify at the discount rate +2%.
For clients with a 20% or greater down payment, who are taking a mortgage term of 5 years or longer, under current rules we can qualify them at the discounted or contracted 5-year rate. Under the proposed rule changes, clients will have qualify at a rate 2% higher than the contract rate, which will effectively reduce their purchasing power by 20%. As an example, if your price point was $1,000,000 come later in 2017 it could be reduced to $800,000. And for those people who were looking at a $1,800,000 home on the North Shore, they are now looking at a half duplex at $1,440,000. Those are HUGE differences in price point and will result in people having to make some difficult decisions about where they live.
You don’t have to be Nostradamus to foresee that as buyers get pushed down into Townhomes and condos, supply will dry up and prices will rise in what is already an overheated market segment. The sad part is that the first time buyer will be pushed out of the market yet again as the effects of these proposed rule changes take hold.
Down payments on properties may increase
This rule is incredibly ambiguous. The governments wording states that the loan to value amount should remain dynamic given the marketplace. If we had to interpret what this rule could look like, we would have to say that it would be targeted at Vancouver and Toronto properties with a value over $1,500,000 and would require a minimum down payment of 25%. We would also expect the down payment requirements to gradually increase so that at a $3,000,000 property value, the down payment would be close to 40%. Again, this is just our best guess.
As we get further updates and clarifications we will be sure to forward them on. Bottom line, if you are planning on making any changes to your home, planning to move, thinking about buying an investment property, now is the time to call and talk to us. You might also want to spread the word through your friends and family since people are not grasping what these change could mean.
