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New mortgage rules could leave first-time home buyers on the sidelines
Published Monday, October 17, 2016 8:41PM MDT
New federal mortgage rules are in effect now and there is concern they will reduce the purchasing power of first-time home buyers.
The government says the rules, which apply to any buyer putting less than 20 per cent down, are intended to reign-in household debt and cool inflated real estate markets.
Kony Lecerf began looking for her first home two years ago.
At that time she qualified for a $300,000.00 mortgage but under these new rules she only qualifies for a $285,000.00 mortgage, she also required a co-signer, so she bought a home over the weekend.
“With that amount you can only afford a condo and with the size of my family that wasn’t something I was looking forward to doing,” says Lecerf.
Buyers also need to pass a “financial stress test” under these new rules.
This means they must be able to make monthly payments calculated at a higher, fictional benchmark rate of four point six per cent instead of the actual rate which is about two point five per cent.
It means all buyers qualify for less but anyone with a lower income will take the brunt of it.
“They will get pushed out and have to continue renting,” says mortgage broker Matthew Key. “The second thing is they will have to come up with other ways to qualify, get a co-signer, or come up with a bigger down payment.”
Ottawa says these regulations will prevent consumer overspending and cool the overheated housing markets in Toronto and Vancouver but financial experts say that’s the last thing Calgary’s depressed market needs.
“With the local economy going through the downturn and these new mortgage rules we’re probably going to see a more negative impact in Alberta than some of the other provinces that have a lot more foreign capital coming in,” says Nathan Giesbrecht with Investors Group Financial Services.
Key expects fewer deals in Calgary’s lower priced, single home market and lower prices overall.
“We’ll probably see it right across the board from condo to $1,000,000,00 homes but it’ll all drop 10 to 15 per cent.”
Industry insiders on the national and local scale suggest this is more about the government’s mortgage insurance arm, the Canada Mortgage and Housing Corporation, trying to wean its way out of the mortgage insurance business and improve its own world credit score, in the event it needs to borrow money, by ridding itself of liabilities.
The head of the CMHC defended the move saying high home prices coupled with high household debt are damaging the economy.
(With files from Lea Williams-Doherty)