November 25, 2017

Where Are House Prices Heading?

falling-prices1With the changes to qualifying for mortgages to cool the housing market, is the fantasy of endlessly rising house prices over?  If the housing market doesn’t respond to measures announced by the federal government, then expect more action ahead.  Argue all you like about how economic and real estate fundamentals affect prices.  In the end, it’s government action that will bring housing to heel.

We need controls for all the people who are basing the biggest financial move of their lives on the idea that houses always go up in price.  Ideally, government intervention prevents a painful correction ahead.

A lot of people are torqued about the influence of foreign buyers on our hottest housing markets, and the feds did target this group.  The government is closing loopholes that foreign buyers use to avoid paying capital gains tax on homes in this country.  Canadians do not have to pay tax on the gains if they sell their principal residence for more than they pay.

With the mortgage stress test, the idea is to see if you can handle interest rates at levels that are much higher than they are today.  A lot of housing bulls have based their argument on a view that interest rates are low and not about to rise in a serious, sustained way because the economy’s too weak to stand it.

If all of these measures combined don’t contain the housing market, there’s always what the government calls “lender risk-sharing.”  If an insured mortgage defaults, lenders are 100 per cent covered.  Ottawa wants to consult on the idea of lenders bearing at least some of the risk of a default, a change that would probably result in lenders being less aggressive with mortgage rate discounts.

Just as important as these measures themselves is the message they send to those who believe what’s happening in our housing market today is normal or healthy.  Ottawa’s worried and it’s taking action.  Prices will not rise endlessly – base your financial decisions accordingly.

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/house-prices-will-not-rise-forever-base-your-financial-decisions-accordingly/article32219135/

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Oakville, Mississauga, Burlington and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Some Good News Regarding Mortgage Rule Changes

mortgage-rulesGreat news, the Department of Finance (DoF) has added one key exception for buyers who already have a firm purchase agreement, dated Oct. 16 or before.  That would theoretically exempt buyers, for example, who bought on pre-sale and won’t close for a few years.  However, lots of lenders will still enforce the MQR when these people go to apply, thus limiting their options, so be sure to check out your lending institution.

Based on CMHC’s debt ratio distribution, up to 15-20% of high-ratio buyers may no longer qualify for the same home they could buy yesterday. Maybe more. That’s because today’s new mortgage qualifying rate (MQR) policy could push them above the 39% GDS limit.

Mortgages with at least 20% down payment, low-ratio insured mortgages, have received a reprieve and won’t have to qualify on the MQR because the implementation date has been pushed back to November 30, 2016.

Mortgage finance companies now have another six weeks to find balance sheet buyers for their low-ratio refinances, rentals and long-amortization mortgages.  Apparently most of the big boys have found funding backups for these loans, albeit at material rate premiums for deals closing on or after Nov. 30.  These rate surcharges will make MFCs more prone to undercutting from deposit-taking lenders, and set back mortgage competition by 5-10 years.

Insured borrowers with 20%+ down can still get approved under the old (easier) method until Nov. 30.  This means that people with lots of equity can take another month or so to apply for a mortgage and still get the maximum approval amount and the lowest possible rate (the cheapest rates are typically from mortgage finance companies, who insure their mortgages at no cost to you).

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Oakville, Mississauga, Burlington and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2016/10/is-this-the-last-nail-in-the-coffin.html

How Do The Mortgage Rules Impact You?

new-mortgage-rulesThere has been a lot of confusion about the recent changes the Federal Government has made to the new mortgage rules effective October 17, 2016.

The basic gist is the purchaser has to meet the mortgage rate stress test eligibility requirement.  This will apply to all insured mortgages, including high-ratio mortgages (a purchaser with a down payment of less than 20 per cent) and the impact will be 20 to 25 per cent less buying power.  It will also portfolio insurance and other low-ratio insured mortgages, offered by alternative lenders.

The stress test is to help ensure new homeowners can afford their mortgages even when interest rates begin to rise.  Mortgage insurance rules require in some cases that lenders “stress test” a borrower’s ability to make their mortgage payments at a higher interest rate.  Currently, this requirement only applies to a subset of insured mortgages with variable interest rates or fixed interest rates with terms less than five years.

Ottawa’s attempt to cool Canada’s overheating housing market and impose stricter regulations on mortgage lending is likely to have a profound impact on alternative lenders that compete with the country’s largest banks.

It also means the banks will probably have to cover 5-10% of the potential loss in their mortgage book.  As the risk of the banks mortgage book moves up, that means they have to hold more capital against their mortgage lending which makes the cost of capital more expensive and you better believe they’re going to try to pass that off to the consumer by way of increased interest rates.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Oakville, Mississauga, Burlington and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

http://www.theglobeandmail.com/real-estate/non-banks-crippled-by-ottawas-changes-to-mortgage-lending/article32312889/

Mortgage Changes Will Definitely Cool The Housing Market

new-mortgage-rulesThe Federal Government have made new mortgage rules effective October 17th and November 30th, 2016 that will have a huge impact on First Time Homebuyers and existing mortgage renewals.  The changes are to ensure that should interest rise that borrowers can afford their mortgage payments in the future and address concerns related to foreign buyers who buy and flip Canadian homes.  The new rules will affect all CMHC insured and low ratio insured mortgages.

Currently, insured mortgages with variable rates and fixed terms under 5 years require borrowers qualify at the 5 year benchmark rate (currently 4.64%).  As of October 17th, 2016, all high ratio mortgage borrowers, including 5 years or longer, will need to qualify at the 5 year benchmark rate, even though their contract rate is significantly lower.

This rule will:

  • disqualify a significant number of pre approved mortgage borrowers who have not yet purchased a home
  • impact first time home buyers by limiting their mortgage qualification
  • lead many borrowers to struggle to find housing as they no longer qualify for a mortgage and rental options are limited due to low vacancy rates

On November 30th, 2016, mortgages that lenders insure using portfolio insurance and other low loan-to-value ratio mortgage insurance, must meet the same criteria as above.  There are also a number of new eligibility requirements for low-ratio mortgages.  The new criteria will also effect mortgages at time of renewal.

It is yet to be seen whether Genworth and Canada Guaranty will follow suit.  Let’s hope this is not the case as the new rules will have a huge detrimental affect on our borrowing power!

Article:  http://www.theglobeandmail.com/real-estate/four-major-changes-to-canadas-housing-rules/article32223470/

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Oakville, Mississauga, Burlington and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Interest Rate Increase January 2017?

ratesIn a previous blog, we talked about the potential of interest rates rising due to revised capital guidelines by OSFI (Ontario of the Superintendent of Financial Institutions).  Now OSFI wants mortgage default insurers to put more money between themselves and taxpayers, especially for mortgages they insure in riskier cities.

The new rules will force government-backed insurers to bolster their capital on mortgages in certain areas.  Effective January 1, 2017, this could make mortgages more expensive for insurers and consumers alike.

“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” said Superintendent Jeremy Rudin.  You can bet your that insurers are already looking at ways to offset these new costs.  Borrowers could be stuck with steeper premiums, higher interest rates and/or more rigid underwriting. That’s especially true if they have:

  • Lower credit scores
  • Higher loan-to-values
  • Longer amortizations.

It will be interesting to see if a borrower, in say, Toronto will be asked to pay a higher insurance premium or whether costs will be offset across the board.

As of Q2, Toronto, Vancouver, Edmonton and Calgary would have exceeded OSFI’s valuation thresholds and forced insurers to pay more capital on mortgages in those cities.  CMHC reviews premiums annually and we wouldn’t be surprised if it announces higher premiums by the first few months in 2017 or before.

Rising premiums aren’t the only fallout here. It could also get tougher for some borrowers to get an insured mortgage. Insurers may now try even harder not to incur losses on mortgages that entail higher capital costs. That could mean more declined applications and therefore, higher costs for the borrower.

Call me if you would like me to shed any light on this situation or help you move ahead of potential rising interest rates!

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Oakville, Mississauga, Burlington and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Article:  http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2016/09/higher-default-premiums-on-the-way.html