Canadian Housing Market Gets Shaken Up and Patted Down
(November 17, 2016
)
Article from REW.ca by Atrina Kouroshnia, November 16, 2016
The home-buying landscape – especially when it comes to mortgage qualification and rates – seems to be changing constantly these days. Mortgage expet Atrina Kouroshnia makes sense of it all
Until (very) recently, Canadians were getting the short end of the stick – at least when it came to income qualifying, compared with foreign buyers. Unlike Canadians, those from outside of Canada could essentially just plunk down 35 per cent on a property in order to buy it; this without some lenders doing serious due diligence on whether they were good for the remaining capital. This had many Canadians furious about the tight guidelines and standards that they were compelled to meet, but that foreign buyers were not. Things changed last month.the Financial Post reported, “pose a particular challenge for income verification.”Unsurprisingly, Vancouver factored big into the equation. With the hottest real estate market in the country, a big price correction under the current conditions could easily cause catastrophic losses as borrowers default, forcing lenders to bear more losses than they can realistically cover.In a letter sent by Rudin to financial institutions around the country, he declared that no bank should be using the “exceptionally low” interest rates as a gauge of whether a borrower can pay their debts. He went on to caution banks about the importance of income verification, even if that borrower has a mortgage that meets the loan-to-value caps.New Rules in PlaceIt was after more than half of year of negotiations between the Office of the Superintendent of Financial Institutions (OSFI) and Canada’s banking sector, these new lending regulations were set forth and, as we now understand, are being implemented for a number of reasons – one of them being to avoid a catastrophe of the 2008 US housing market variety.We are already starting to see the impact of the subsequent new mortgage rules that took effect on October 17. Stricter lending criteria have made getting into the market impossible in the Lower Mainland for some of my first-time home buyers altogether. For non-residents, these tighter rules mean the banks are going to have to do more work to ensure that borrowers meet their requirements for a mortgage even if their mortgage is not insured.Not only that, lenders are going to have to keep more bread in the oven from now on. OSFI has demanded that banks keep more capital on hand should the threat of default become real – which it very well may, if mortgage rates suddenly change – so that the rest of us won’t have to bail them out when it’s time to pay the piper. Failure to comply with this regulation makes the lenders vulnerable to the possibility of OSFI pulling their mortgage insurance.Increase in Lending RatesSo what does all that mean for borrowers?More money – but not the kind sitting in your bank account. These stricter regulations could have a trickle-down effect on how much borrowers will have to pay to service their mortgage. TD was the first major bank that discreetly increased their prime rate from 2.7 per cent to 2.85 per cent even with no changes to the Bank of Canada’s overnight lending rate. However, this change continues to allow them to be competitive as their variance off prime became greater for new clients. Unfortunately, existing clients – including myself – are faced with a slightly higher mortgage payment as the overall variable rate has increased.Fixed rates are affected by Canadian bond yields, which have been on the rise. Almost all lenders have increased their fixed rates for most of their terms, although some are still offering lower promotional rates with short closing periods and for insured mortgages. As of November 17, for example, the Royal Bank of Canada is raising its special offer for a five-year fixed rate mortgage to 2.94 per cent from 2.64 per cent, and raising rates on three- and four-year fixed rate mortgages by a similar amount.This is a huge change to the real estate landscape in Canada. Before this proverbial tightening of the belt, things were certainly “easier” for borrowers seeking a mortgage. Some of the big five banks didn’t income-qualify foreign buyers as long as they had their 35 per cent in Canada for a period of 30 days, and some offered pilot programs to get around income qualification all together. These programs have since been nixed and providing documentation to prove income for foreigners has become the norm.It will be interesting to see how high the rates can climb and how many more changes we expect to see in the coming months from lenders as OSFI continues patting them down. Insurers could set prices regionally, taking into account the price vs. income risk in different areas, or mortgages that are bulk insured could lose their competitive edge as they become more expensive for their investors. Many say that the market was already on its way to correct itself and these changes couldn’t have come at a worse time.
You know you’re in hot water when the Office of the Superintendent of Financial Institutions (OSFI) gets involved in your affairs. And that’s exactly what OSFI finally did in response to a number of financial institutions that claimed to have confronted “misrepresentation of income and/or employment” from borrowers. Superintendent Jeremy Rudin made it clear that this was a particular threat when dealing with foreign buyers who, as Categories

- All Entries (364)
- Government Policy (3)
- Metro Vancouver Housing Market (31)
- Real Estate Q and A (5)
- January 2018 (6)
- February 2018 (6)
- March 2018 (6)
- April 2018 (6)
- May 2018 (6)
- June 2018 (6)
- July 2018 (6)
- September 2018 (6)
- October 2018 (6)
- November 2018 (6)
- December 2018 (6)
- January 2019 (6)
- February 2019 (6)
- March 2019 (6)
- April 2019 (6)
- May 2019 (6)
- June 2019 (6)
- July 2019 (6)
- August 2019 (6)
- September 2019 (7)
- October 2019 (6)
- November 2019 (6)
- December 2019 (6)
- January 2020 (6)
- February 2020 (6)
- March 2020 (6)
- April 2020 (6)
- May 2020 (6)
- September 2020 (5)
- June 2020 (6)
- July 2020 (6)
- August 2020 (6)
- October 2020 (6)
- November 2020 (6)
- December 2020 (6)
- February 2021 (6)
Archives
- February 2021 (6)
- December 2020 (6)
- November 2020 (6)
- October 2020 (6)
- September 2020 (6)
- August 2020 (6)
- July 2020 (6)
- June 2020 (6)
- May 2020 (6)
- April 2020 (6)
- March 2020 (6)
- February 2020 (6)
- January 2020 (6)
- December 2019 (6)
- November 2019 (6)
- October 2019 (5)
- September 2019 (6)
- August 2019 (6)
- July 2019 (5)
- June 2019 (6)
- May 2019 (7)
- April 2019 (6)
- March 2019 (6)
- February 2019 (6)
- January 2019 (6)
- December 2018 (6)
- November 2018 (6)
- October 2018 (6)
- September 2018 (5)
- August 2018 (5)
- July 2018 (5)
- June 2018 (6)
- May 2018 (6)
- April 2018 (6)
- March 2018 (6)
- February 2018 (7)
- January 2018 (6)
- December 2017 (6)
- November 2017 (6)
- October 2017 (6)
- September 2017 (6)
- August 2017 (7)
- July 2017 (6)
- June 2017 (6)
- May 2017 (6)
- April 2017 (6)
- March 2017 (6)
- February 2017 (7)
- January 2017 (6)
- December 2016 (7)
- November 2016 (12)
- October 2016 (6)
- September 2016 (6)
- August 2016 (6)
- July 2016 (6)
- June 2016 (6)
- May 2016 (7)
- April 2016 (7)
- March 2016 (7)
- February 2016 (1)