New Canadian mortgage rules come into effect

CN Tower, Toronto, Canada

New Canadian mortgage rules come into effect today, introducing tighter lending restrictions for some buyers.

The rules require all borrowers to undergo a tougher stress test when applying for an insured mortgage (where buyers have down payments of less than 20 per cent). While the current mortgage rate is around 2.4 per cent, borrowers applying for insured mortgages will need to demonstrate they can theoretically afford repayments at the higher Bank of Canada benchmark rate (currently 4.64 per cent) in order to be approved.

“The Finance Minister’s recent changes to regulations affecting mortgage lending has added to housing market uncertainty among buyers and sellers,” says CREA President Cliff Iverson. “For first-time home buyers, the stress test for those who need mortgage default insurance will cause them to rethink how much home they can afford to buy.”

“First-time home buyers, particularly in housing markets with a lack of affordable inventory of single family homes, may be priced out of the market by the new regulations that take effect on October 17th,” adds Gregory Klump, CREA’s Chief Economist. “First-time home buyers support a cascade of other homes changing hands, making them the linchpin of the housing market. The federal government will no doubt want to monitor the effect of new regulations on the many varied housing markets across Canada and on the economy, particularly given the uncertain outlook for other private sector engines of economic growth.”

The changes arrive as the number of homes trading hands rose 0.8 per cent month-over-month in September 2016, accord to the CREA. Having eased in each of the previous four months, national home sales are 5.6 per cent below the record set in April 2016.

The number of markets was evenly split between rising and falling sales, with transactions up in the Greater Toronto Area and down around the Lower Mainland of British Columbia.

While some are concerned about the impact of uncertainty upon buyers, though, one of Toronto’s most prominent brokers, Brad Lamb, tells CBC that the city is strong enough to avoid a correction.

“The market here is so well supported with employment. There are shortages of rentals, shortages of purpose-built rentals, and shortages of anything to buy,” he comments, predicting that the tighter lending restrictions will have little effect.