How the New Lending Rules Could Affect Your Real Estate Plans
When you’re planning to buy real estate, it’s very important to know about any changes in the market or rules. This knowledge will help you plan better as you will be aware of a change in rules or an increase or decrease in rates. As an experienced real estate agent, I understand the impact of new rules and want to pass on this information to my clients and the general public so that they may benefit from it.
One of the more recent changes in the real estate industry that is likely to affect the market going forward is the change in lending rules introduced by the Liberal government. These changes will effectively make it harder for people to qualify for a mortgage, and reduce the size of mortgage they can afford as it will reduce every buyer’s buying power.
As per the new lending rules put in place by the Office of the Superintendent of Financial Institutions Canada, there is new minimum qualifying rate, or “stress test,” for uninsured mortgages. This means that that the minimum qualifying rate for uninsured mortgages is now greater than the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
In addition, OSFI now requires lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk and are updated as housing markets and the economic environment evolve.
OSFI is also placing restrictions on certain lending arrangements that are designed or appear designed to circumvent LTV limits. This means that a federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
These new rules which will be effective January 1, 2018, tilt the scales in favor of lenders because it strengthens the lenders lending criteria and therefore their security when lending to new buyers.
The cons of the new mortgage rule are that it will make it harder to obtain a mortgage and the buyer’s buying power will be reduced by twenty percent. This may force buyers to exit the market that is presently so inflated.
One way for buyers to get around these new rules is to get pre-approved as soon as possible and contact your real estate agent to find out how these new rules will affect you.
You should also contact me, John Moniz, at the earliest so that we can discuss a buying strategy and how you can go about buying your next home. After our discussions, I will be able to create a plan of action and with the help of my team of professionals in the industry, we will be able to make things a lot smoother for you. If you have questions about the new lending rules, please contact me by clicking here.