October 2016 Mortgage Update
The federal government recently announced changes to rules regarding mortgage financing. As of October 17th, 2016 these changes will reduce the mortgage amount that buyers on high-ratio mortgages (putting <20% down) will be able to obtain. The idea is that when/if mortgage rates rise homeowners will still be able to make their payments.
High-ratio buyers will now have to qualify for a mortgage using the posted benchmark rate (currently 4.64%) rather than the rate they are going to be paying (which might be as low as 2.35% for a 5-yr fixed rate). A buyer that is currently qualified to purchase up to $527,000 with a 10% down payment will only qualify for $420,000 under the new rules…they won’t be paying any more, but they will qualify to purchase less of a home.
The group most impacted by this change in our market are first-time homebuyers. This move will likely mean that many first-time homebuyers will need to either purchase less expensive property or defer a purchase until they can save for a larger downpayment.
We believe that we are likely to see a short-term negative impact at the lower-end of our market due to these changes. It will be contained to the lower margins as this is where first-time buyers are most active and CMHC insurance is only applicable on properties <$1,000,000. In our experience, the majority of buyers in Vancouver are already putting 20% down to avoid the cost of CMHC insurance (either through savings or the help of family). Markets with lower prices (eg almost anywhere else in Canada) will see a more significant impact. For these reasons, we foresee a more limited longterm effect in our market place.