New Rules Set to Tighten Mortgage Requirements
On Tuesday, the federal government introduced new mortgage rules that make it more difficult to qualify which will likely reduce the purchasing power throughout Metro Vancouver by as much as $50,000. In the midst of concerns that many average Canadians are stretching themselves too thin to take advantage of historically low mortgage rates, the federal government has responded by creating tougher requirements for buyers looking for insured high-ratio mortgages.
Come April 19th, the government will require that all buyers meet the criteria to qualify for a five-year, fixed rate mortgage, regardless of whether they are looking for a variable mortgage or not. Typically, variable mortgage rates are much lower and therefore more attractive to buyers with less capital.
Leading economists in British Columbia point out that the previous standards required buyers meet the requirements for a 3 year fixed mortgage rate, which is still typically lower than variable rates. With this change, the average household loses nearly $40,000 of their purchasing power. Clearly, this will have a substantial impact on the real estate mortgage, especially for newcomers to the market.
Still, some experts are not convinced about how much these changes will affect buying power or the market at large. One estimate figures the change will squeeze the purchasing power of buyers by as much as $50,000. But, how much will this affect the market?
The majority of buyers in the market won't be affected and first time buyers will still have access to low rates based on a five per cent down payment and 35-year amortizations. Contrarily, if the government were to increase the minimum down payment and reduce the amortization period, the market would be affected more seriously.
As anybody who has been following the market recently knows, things have been booming throughout the Lower Mainland and Metro Vancouver largely due to the historically low interest rates. Last April, for example, the Bank of Canada slashed its benchmark policy rate to 0.25 per cent and promised to hold it there until at least July. These efforts were in direct response to the struggling economy as the bank attempted to fuel growth rather than to prevent the looming housing bubble that many experts were predicting.
The goal continues to avoiding a housing bubble and the government appears to be taking proactive steps to be cautious. Some other rule changes have also been introduced and will affect individuals hoping to refinance their mortgages. The maximum amount that can be withdrawn has been lowered from 95 per cent to just 90 per cent. Moreover, they have placed a minimum 20 per cent down payment for government supported mortgage insurance on rental properties.
This would have a direct impact on those looking to buy condos or other properties for rental income. Before these changes, the government required only a 5 per cent down payment. And it's these changes that are expected to cause the most ripples in the Metro Vancouver market because of its shrinking market for purpose-built rentals.
Still, this means mission accomplished for the government which clearly seems to be trying to cool the current real estate market and prevent further increases in housing prices. Unfortunately, this could also mean a long-term drop in rental home and condo investments.
Come April 19th, the government will require that all buyers meet the criteria to qualify for a five-year, fixed rate mortgage, regardless of whether they are looking for a variable mortgage or not. Typically, variable mortgage rates are much lower and therefore more attractive to buyers with less capital.
Leading economists in British Columbia point out that the previous standards required buyers meet the requirements for a 3 year fixed mortgage rate, which is still typically lower than variable rates. With this change, the average household loses nearly $40,000 of their purchasing power. Clearly, this will have a substantial impact on the real estate mortgage, especially for newcomers to the market.
Still, some experts are not convinced about how much these changes will affect buying power or the market at large. One estimate figures the change will squeeze the purchasing power of buyers by as much as $50,000. But, how much will this affect the market?
The majority of buyers in the market won't be affected and first time buyers will still have access to low rates based on a five per cent down payment and 35-year amortizations. Contrarily, if the government were to increase the minimum down payment and reduce the amortization period, the market would be affected more seriously.
As anybody who has been following the market recently knows, things have been booming throughout the Lower Mainland and Metro Vancouver largely due to the historically low interest rates. Last April, for example, the Bank of Canada slashed its benchmark policy rate to 0.25 per cent and promised to hold it there until at least July. These efforts were in direct response to the struggling economy as the bank attempted to fuel growth rather than to prevent the looming housing bubble that many experts were predicting.
The goal continues to avoiding a housing bubble and the government appears to be taking proactive steps to be cautious. Some other rule changes have also been introduced and will affect individuals hoping to refinance their mortgages. The maximum amount that can be withdrawn has been lowered from 95 per cent to just 90 per cent. Moreover, they have placed a minimum 20 per cent down payment for government supported mortgage insurance on rental properties.
This would have a direct impact on those looking to buy condos or other properties for rental income. Before these changes, the government required only a 5 per cent down payment. And it's these changes that are expected to cause the most ripples in the Metro Vancouver market because of its shrinking market for purpose-built rentals.
Still, this means mission accomplished for the government which clearly seems to be trying to cool the current real estate market and prevent further increases in housing prices. Unfortunately, this could also mean a long-term drop in rental home and condo investments.
posted by VancouverResidence
