There has been a lot of buzz this week about the mortgage rule changes that are taking effect on the 17th. As with every announcement and rule change surrounding housing in this country, it is complicated, and the headlines can be misleading (remember the 10% down rule? It only applies to any amount on a mortgage above $500,000.00. The first $500,000.00 on a mortgage can be had at 5% down still, but a lot of people don't know that a year later). The new rules coming down next week only affect insured mortgages, which are purchases with the buyer putting less than 20% down. If you have 20% down, quit reading. This doesn't apply to you.
The new changes are to curb over leverage. A household with two significan incomes, but no downpayment saved up and ultra low interest rates can qualify for a staggering amount of mortgage under the old rules. I have sold countless homes bordering on a million dollars with purchaser's putting less than 10% down. The mortgage payments may be sustainable at the current interest rate and the current salary of the occupant, but what if interest rates go up by even 1%? Your payments will balloon. What if (as is the case in Calgary) there is significant job lossess and salary reductions? The market runs the risk of heavy foreclosure pressure.
The problem is that the risky behaviour of some higher end purchasers is going to hurt the lower end of the market. First time buyers who are not making huge money right out of the gate are now going to be face with a lot less choice when it comes to starting out. Condos are going to be more prevelant first time purchases just because they are the only affordable option with less than 20% down with lower incomes.
Don't panic. This is an overall good thing for the market, it's just going to take some getting used to. If interest rates go up (and they eventually will) this will put the Canadian Real Estate Market in a position to weather that storm.
If you want the dry details, email me (firstname.lastname@example.org), and I can send you the official rule changes.
Have an awesome Saturday!