Three months ago, Finance Minister Jim Flaherty told banks to step up and firm up their lending requirements. When that didn’t work, he took matters into his own hands, releasing a laundry list of mortgage rules last week. The roughly eight major rules released by the DoF and the OSFI last week will likely influence the Canadian real estate market for years to come, but their impact on the current situation will be most evident in the next week as the due date for implementation, July 9, draws near.
If you’re in the market for a home and are worried about how the new mortgage rules could impact your purchase, now’s the time to act. Here’s a look at what’s been happening, and what will likely happen over the next few days.
Expect a Speedy Implementation…
The government knew full well that borrowers would clamour to cut off new mortgage rules the minute they were announced. As such, the Department of Finance provided just 18 days lead time until the new rules would come into effect. As a result, most lenders had no idea that new mortgage insurance rules were forthcoming. Since banks like to appear prudent to regulators, there’s a chance that some may try and implement rules prior to the July 9th deadline.
…and a Sense of Urgency
Mortgage brokers from coast-to-coast are advising clients of the recent changes. This sense of urgency will undoubtably spike mortgage volumes near-term. However, mortgage rule chances might not be the best reason to rush your home purchase. Underwriting during the interm period will be vigilant as lenders attempt to weed out marginal borrowers. Lenders with the best mortgage rates could run into abnormal underwriting delays over the next few weeks, so be careful if you’re working around a financing condition deadline.
Get Pre-Approved Today
If you want to take advantage of current mortgage rules, get pre-approved now. In order to avoid the new, stricter requirements you’ll need to have a purchase agreement dated before July 9th and have applied for a full mortgage approval before the deadline date.
While all of the big banks will remove 30 year amortizations from their portfolio, some non-traditional lenders may continue to offer this product to people with 20 percent equity. Speak with your mortgage broker to better understand this possibility.
Get Ready for Rate Wars
Flaherty wasn’t pleased when banks broke the 3 percent barrier on 4- and 5-year earlier in the year. Ottawa felt that rate promotions of this type were irresponsible and went against Ottawa’s attempts to temper credit growth. Unfortunately, these “rate wars” will likely only intensify now that well-qualified lenders will become even more appealing to lenders. New mortgage rules will quickly shrink the pool of prime borrowers, causing banks and brokers to battle harder for their business.
Market Stability?
The government believes that the latest round of mortgage rules will bring “long-term” stability to Canada’s real estate market. What they often forget to mention is the adverse short-term affects. While the Department of Finance believes that these risks are “manageable” they’re still worrisome. Home prices, which are already beginning to self-correct in some areas, will see additional pressure. This will cause mortgage affordability to drop, a scary situation considering how closely related home prices and mortgage affordability are.
Despite the short-term pain, it’s clear that housing volatility will be reduced by the government’s moves – provided you look out far enough. In the meantime, it’s important that you talk with your mortgage broker considering the best rate mortgage offers that are currently available. Speak to an expert at FamilyLending.ca today for more information and mortgage rate advice.