How New Lending Rules Could Affect Your Mortgage Plans
Change is the only constant in the world, and keeping up with change is crucial when you’re planning to obtain a mortgage. Knowledge about changes in rules or an increase or decrease in rates helps you plan better. Sometimes, changes that seem very subtle to the layman, in reality, can have a huge impact.
To help keep you updated on the latest trends, we’re sharing the latest news in the mortgage industry.
Most recently, a change in lending rules introduced by the liberal government, will make it harder for people to qualify for a mortgage, and reduce the size of mortgage they can afford. These new rules will affect first-time home buyers, and those switching institutions when renewing existing mortgages.
The new lending rules put in place by the Office of the Superintendent of Financial Institutions Canada are as follows:
“OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.
- Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
OSFI is requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.
- Under the final Guideline, federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.
OSFI is placing restrictions on certain lending arrangements that are designed, or appear designed to circumvent LTV limits.
- A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.”
Changes will come into effect in January, 2018 and apply to all federally regulated financial institutions.
At The Mortgage Centre, we believe these new rules will have a negative effect on buyers with twenty percent or more as a down payment. This will cause the mortgage business to slow which will affect resale homes as well as new construction. This will ultimately see a further decline in house prices.
Upfront, we see no positives come out of these new rules, instead, there are several downsides. The new lending rules will result in the slowing down of the housing market and a decline in house prices. These rules will severely dent consumer’s confidence in the markets, which in turn will affect many other areas of our economy.
The only way to take advantage of this new rule in its present state is to head out and purchase before January, or risk being locked out of the housing market after that.
However, as a tax paying citizen, you do have another option. You could write to your local Member of Parliament and let them know that the new lending rules are another broken promise and are a bad decision that will not be forgotten at election time.
At The Mortgage Centre, we’re mortgage professionals that provide custom mortgage solutions for all your mortgage needs. However, it is also our aim to keep you updated with the latest changes in the industry as we work for you and not the lenders. If you have questions about how these new lending rules could affect you or any other mortgage-related concerns, please contact us by clicking here.