Do you want content like this delivered to your inbox?
Share
Share

New Mortgage Qualification Rules Temper Housing Demand

Brenda Ellis

Brenda Ellis, most frequently known as Brell, is a partner, mom, grammie, friend and a REALTORĀ® youā€™ll want to connect with...

Brenda Ellis, most frequently known as Brell, is a partner, mom, grammie, friend and a REALTORĀ® youā€™ll want to connect with...

Oct 29 5 minutes read

Vancouver, BC ā€“ March 14, 2018The British Columbia Real Estate Association (BCREA) reports that a total of 6,206 residential unit sales were recorded by the Multiple Listing ServiceĀ® (MLSĀ®) across the province in February, a 5.7 per cent decrease from the same period last year. The average MLSĀ® residential price in BC was $748,327, up 8.8 per cent from the previous year. Total sales dollar volume was $4.64 billion, a 2.6 per cent increase from February 2017.

ā€œMore stringent mortgage qualification rules for conventional borrowers are dampening housing demand in the province,ā€ said Cameron Muir, BCREA Chief Economist. ā€œSince the new rules came into effect, BC home sales have fallen more than 26 per cent, on a seasonally adjusted basis.ā€

Previous mortgage policy tightening has negatively impacted housing demand for a period of four to seven months, with the largest impact occurring in the third month after implementation.

Year-to-date, BC residential sales dollar volume was up 15.9 per cent to $8.47 billion, compared with the same period in 2017. Residential unit sales increased 4.1 per cent to 11,516 units, while the average MLSĀ® residential price was up 11.3 per cent to $735,755.

I asked Shelagh Green about the changes recently and here is what she had to say

"The newest rule change took effect January 1st, 2018, the ā€˜Stress Testā€™, for Conventional Financing, this is for those who are putting 20% or more as a down payment, or Refinancing with 20% Equity in their home.  ie: the client takes a 5 yr. Fixed Rate, the Contract or Discounted Rate is 3.39%, they must qualify at 2% over that rate or 5.39%, their actual payments are calculated on 3.39%, but the qualifying payment on the application is calculated on 5.39%.  On a Home Equity Line of Credit, our product is called an RBC Homeline Plan, where the client can have a fixed or variable term Mortgage component, and or all of the funds in a Line of Credit component, they must qualify at 2% over the Line of Credit Rate within our Homeline Plan, which is currently 3.95%, therefore the qualifying rate is 5.95%.

The Office of the Superintendent of Financial Institutions (OSFI) announced the following new regulations effective January 1, 2018.
  • When qualifying clients, federally-regulated financial institutions (FRFIs) will be required to approve conventional or uninsured residential mortgages at the greater of the contract rate plus 2% or the 5-year benchmark rate published by the Bank of Canada. This change applies to conventional / uninsured mortgages only.
  • The governmentā€™s objective is to slow the housing market and ensure long term stability. As a result, all potential home buyers will need to prove they could still afford their mortgage payments if interest rates were 2 per cent higher than the rate they negotiate.
Since October 2016 High Ratio or Default Insured Mortgages, clients putting down less than 20%, (CMHC, Genworth, Canada Guaranty) must qualify at the Qualifying Rate/or 5 Yr. Posted Rate, currently 5.14%, but their payments are based on their Contract Rate ie. 3.39% on a 5 yr. Fixed, 3.29% on a 4 yr. Fixed.
 
These changes have certainly had some effect on what clientā€™s will qualify for in a mortgage amount.  As January & February historically is a slower market in the Interior, I donā€™t believe that we will really see how big of an effect these changes will have until March April.  I am telling my clients, they must get Pre-Approved, even if they are Selling and Re-Purchasing, and Porting their Mortgage, as they must qualify under the new rules."

In addition, Kelly Rowe of Lending Max had this to add:
"I'm seeing the effects of these new rules as do my colleagues. It isn't really a positive one, but I don't think it is the end of the world either. It seems the insured mortgages are not going to be overly impacted
as those rules have been in place for about 18 months now.

The impact there is now is coming from the rising interest rates.
The conventional mortgages are going to be where these rates and rules will have the biggest impact of course. I think we'll see the market
level out perhaps in the bigger centres and we may see an increase in the smaller outlying areas where homes are still more affordable.
It's a bit of a crap shoot predicting, but there's my thoughts."
We use cookies to enhance your browsing experience and deliver our services. By continuing to visit this site, you agree to our use of cookies. More info

Terms of Use

This website is operated by Chris Holm Associates/Chris Holm, REALTORĀ®, a Salesperson who is a member of The Canadian Real Estate Association (CREA). The content on this website is owned or controlled by CREA. By accessing this website, the user agrees to be bound by these terms of use as amended from time to time, and agrees that these terms of use constitute a binding contract between the user, Chris Holm Associates/Chris Holm, REALTORĀ®, and CREA.

Copyright

The content on this website is protected by copyright and other laws, and is intended solely for the private, non-commercial use by individuals. Any other reproduction, distribution or use of the content, in whole or in part, is specifically prohibited. Prohibited uses include commercial use, ā€œscreen scrapingā€, ā€œdatabase scrapingā€, and any other activity intended to collect, store, reorganize or manipulate the content of this website.

Trademarks

REALTORĀ®, REALTORSĀ®, and the REALTORĀ® logo are certification marks that are owned by REALTORĀ® Canada Inc. and licensed exclusively to The Canadian Real Estate Association (CREA). These certification marks identify real estate professionals who are members of CREA and who must abide by CREAā€™s By-Laws, Rules, and the REALTORĀ® Code. The MLSĀ® trademark and the MLSĀ® logo are owned by CREA and identify the professional real estate services provided by members of CREA.

Liability and Warranty Disclaimer

The information contained on this website is based in whole or in part on information that is provided by members of CREA, who are responsible for its accuracy. CREA reproduces and distributes this information as a service for its members, and assumes no responsibility for its completeness or accuracy.

Amendments

Chris Holm Associates/Chris Holm, REALTORĀ® may at any time amend these Terms of Use by updating this posting. All users of this site are bound by these amendments should they wish to continue accessing the website, and should therefore periodically visit this page to review any and all such amendments.