Mortgage rule announcements and how it affects you

What changes were announced today?

Insured mortgages will be qualified at 5-year benchmark rate of 4.64%

You will now need to be qualified for a 5 year fixed mortgage as if you were getting a rate of 4.64%. Talk about pulling out a jackhammer where a chisel was needed!  If you are currently buying a home with less than 20% down, decrease the approval amount by 15-20%.  Unless there are additional fine details that decrease the impact of this announcement, the Canadian government has just hammered the major centres across Canada.  Particularly in Vancouver and Toronto.

This is yet another policy from the government of Canada the benefits wealthier residents, and ironically destabilizes the real estate market.  The primary incentive of going for a 5-10 year fixed mortgage term was the fact that you could qualify for more with those terms than you could with with a variable rate or a 2 year term.  Now they have removed any incentive to take a 5 year term because it will be qualified at the same rate.  People will take one or two year terms or variable rates. Shorter terms and variable rates were viewed as a destabilizing factor in the market with concerns of rate shocks upon renewal.

Foreign buyers have to pay tax on their property sales

The information on this is vague and I was not even familiar with the fact that this loophole existed, but apparently foreign buyers who are not resident in Canada can declare a home as a primary residence and sell their homes without being subject to capital gains.  I find it strange that this is being talked about in the media as the primary change announced today, but it is relatively minor in its impact.

What will the impact of the mortgage change be on the housing market?

I believe that in addition to the foreign homebuyer tax having a 5-10% decrease in home prices, that this change will be an additional 10-15% decrease in home prices before we start to see the market adjusting to the policies and an increase in prices again.  I hope that I am wrong, and that the impact of these changes are minor blips.  However, most of my clients are just scraping to get into their mortgages under even the current rules, and I believe my clients are fairly reflective of the general market.  Every new government talks a good game about consultations with the public and industry, but I don’t believe they had talked to anyone about this.

It will be interesting times ahead.