OSFI B20 mortgage guideline changes 2017 – Part 2

This is a continuation of the article published here about the OSFI B20 morgage guidline changes for 2017.

If you are familiar with mortgage brokers at all (which you probably aren’t) you would know that we also have alternative sources of lending for situations where a mortgage borrower will not qualify with a prime institution.  We have what we call “B” lenders, who have higher rates but more flexible lending criteria, and we have private lenders, which are individuals and corporations who can lend money on on anything that suits them.

Already this past year, for reasons of high real estate prices, lack of money flowing out of China, and mortgage regulatory changes, and tremendous increases in equity by homeowners who are stretched financially, my private lenders, who are the “lenders of last resort” have been completely SLAMMED!  I call many of them and they are short on money to lend because they have been so busy.  When the private lenders run out of money, there is no one else left to go to to borrow more money.  When people need money and cannot get it, then they start to miss payments.  Private lending is a small part of the mortgage market currently, so it is not a US 2007 scenario, but I see it as a storm brewing.

The only reprieve from these changes will be with non-federally regulated lending institutions.  I am fortunate enough that I do work with credit unions in BC, who will possibly not change their lending policies to match the federal institutions.  If that happens, I will be a great credit union supporter in the coming year, and I imagine most of my colleagues will be also.  However, following this through to its logical conclusion, there are three things that will likely happen with these credit unions:

  1. They will be so busy that they will run short on funds.
  2. They will increase rates substantially to adjust for their advantaged market position. Or
  3. They will adjust their policies to be more in line with the federally regulated institutions.

Or some combination of the above.

So, do you buy now, or buy later, or do you sell if you are currently owning?

I don’t believe that question has a blanket answer for every situation. If you are working with me, I can give you my opinion about your situation.  However, it would be based on these considerations:

  1. Are you buying for the short term or flipping?  If so, my opinion is to not buy at this time.
  2. If you want to buy, will you be able to buy in the new year under the new rules, even if prices decrease substantially?  If not, it may be best to bite the bullet and buy now while the regulations are more favourable.  In the long term, prices will surely recover, and despite the rationale behind my opinion, I may be wrong and we may just see a minor blip in prices before they continue upward.  I predicted incorrectly last year as prices took a small dip before recovering and continuing to increase, and the condo and townhouse segments got hot.  That was also combined with the foreign buyers tax and the new Chinese regulations restricting the outflow of money from China.
  3. If sellers cannot get any buyers for their properties at the price that they expect, then they may wait out the market and the inventory on the market could shrink substantially.  In that case, buying now may be a better option.
  4. If you are thinking of selling within the next two months, I would cash out now while there is strong demand and everyone will be looking frantically for a property before January 1.
  5. If you are selling to move up to a more expensive property and you can wait until at least next April, then that is what I would do.  Although the new regulations come into effect on January 1, properties with approvals before January 1 can close in the new year unaffected by the rule changes.
  6. If you are planning on downsizing or moving to a different real estate market in the next 6 months, I think that right now is a very good time to sell.

Please note that I am not a realtor and I am writing about the market from a mortgage financing perspective and not from a realtor’s perspective.  However, for most people mortgage financing is the most important aspect of buying a home, and it is possibly the single largest factor in how a real estate market behaves.  You cannot buy a house that you do not have the money or financing to purchase.

In conclusion, I am not completely certain what we will see happen in the new year, but if I were to guess, I would estimate for it to be a moderate to severe correction. As mentioned though, depending on your circumstances, buying a home may still make sense for you.

OSFI B20 mortgage guideline changes 2017 – Part 1

B20?  Is that some kind of vitamin?

It certainly sounds like a vitamin, but unfortunately, it is something else altogether.  The Office of the Superintendent of Financial Institutions is the regulator for all federal mortgage lending institutions.  They set the regulations for mortgage companies like banks to follow (or ignore). The latest updates to the B20 mortgage regulations could bring some potentially very disrupting changes to the real estate market, especially if you are wanting to get a mortgage in Vancouver, or you are a mortgage broker in Vancouver. In summary: (more…)

Bank of Canada announces increase to the prime lending rate

I am just sending a quick note out to let you know about today’s announcement by the Bank of Canada to increase the prime lending rate. The increase is .25% and is applicable to variable and adjustable rate mortgages.

If you are one of the people on a fixed rate mortgage, then this will not affect you at this time. If you are on a variable rate, most lenders adjust the payment to reflect the interest rate change. A couple lenders will keep your payment the same but you will be paying less principal and more interest with each payment. (more…)

Another reason Vancouver home prices will not increase as quickly this year

housing marketThe Greater Vancouver real estate market is getting hit from all angles at the moment.  There is the foreign buyers tax, the empty home property tax and the most recent draconian mortgage lending rule changes.  The foreign buyers tax has been scaled back somewhat to make it more reasonable for those with work permits, but it is still a major deterrent to property speculators looking to park their money. (more…)

About the BC Home Partnership Program

The newest program initiative offered by the BC government has been officially launched as of Jan. 16th.  The program is called the BC Home Partnership Program, and under the terms of the program, eligible first-time homebuyers will be able to receive 5% of the value of your home purchase up to a maximum of $37,500 on a maximum property value of $750,000.  The program matches, dollar for dollar, the down-payment of the home buyer.  The program provides the funds secured by a second mortgage behind your regular mortgage. (more…)