New Lending Rules in Canada
Tuesday Dec 12th, 2017
Buying a condo in Canada has been easier in the past due to the lenient lending rules in Canada. The housing market of Canada is fast and the government has been trying to slow down this market. This time, there are some major changes being introduced by the banking regulator of Canada, OSFI, which will be implemented from 1st January 2018.
Fears of the Government of Canada:
The changes are due to the housing market situation in the country. the government has been taking into consideration two things which have been worrying the government for a long time. The things that the Canadian government is worried about are:
- Correcting of the housing market
- Rising the interest rates.
The government has been doing its best to slow down the housing market of the country as they wish to prevent the housing disaster from taking place in their country. the steps they have taken so far have not been proved to be effective such as making difficult for people to get a mortgage.
What are the Changes Being Made?
The important question is that what are the changes that will be implemented from the very first day of the year 2018. Here are the major changes in the changes of mortgage financing.
- Stress Test:
The most notable change that will be implemented is the stress test. So, what is the stress test?
It is a way to test the worst-case scenarios for any kind of investment. The mortgage stress test is a way to thoroughly look for the percentage of risks of each loan application. In 2018, the interested buyers will have to be ready for the negotiated amount along with a 2%, or the average bank 5 years posted rate of 4.89%.
A similar stress test will be taken mortgages that are uninsured but it will be at a rate of 20% of the down payment. In the case when the mortgage change lenders are undergoing refinancing, the home-owners will be stress-tested. You can use our mortgage calcultor to start the process of seeing your affordabiltiy.
- Restriction on Mortgage Insurance:
Mortgage insurance will be restricted in the following cases,
- Owner-occupied dwellings
- The maximum amortization period is shorter
- The purchasing price is less than or equal to $1 million.
- The minimum credit score is 600
The default mortgage insurance premium which will be payable on insured mortgages will reach up to 4%.
- Foreign Buyers:
In case of foreign buyers, a foreign buyers’ tax of 15% will be imposed on buyers in British Columbia and Ontario. For the purpose of taxation, the sellers in British Columbia will have to show their Canada residency status. Why so? Well, this is being done in order to make sure that foreigners/non-tax residents cannot avoid the payment of taxes on capital gains which is a result of the sale of the property.
These are the major changes that will be implemented from 1st January 2018 and surely these will have some impacts on the housing market of Canada.
Impact of Changes:
Whenever a change takes place in any field of the world or the phase of life, there are some major impacts that are a result of these changes.
- Increase in Sales:
As these changes will be implemented and come in force from 1st January 2018, the people will try their best to buy property in the months of November and December of 2017. There will be a huge increase in the sales of homes in the ending days.
- Growth Rate of House Prices:
The growth rate of house prices will slow down a bit. This will be observed majorly in areas like Vancouver and Toronto.
- Price of Homes:
Not much can be said about the prices of the property as to whether there will be an increase in the prices or a decrease. We cannot say if these changes really affect the lenders or the buyers will try to buy the properties before the enforcement of the changes or not.
What to Do?
Yes, it is natural to have questions like these. Everybody has their own thinking and opinions. According to me the lenders and buyers should think in long-terms. It is not very wise to time the market but the best thing to do in this situation is to do what you think is best for you.
Another advice which might help you make your decision is to the buyers. It is best if the buyers do not buy homes or properties to their absolute maximum borrowing limit. Why so? Because Canada is a very expensive place to live, there are many options for everyone if they stretch their boundaries. Do not invest everything you have in properties because there are many other things you need to afford in order to live in such an economically active country.
It cannot be said with surety as to how will the people of Canada react to the changes in mortgage rules. The reactions will be a bag of mixed opinions, it might be good for some people or it might be bad for some. Nothing can be said with certainty. In my opinion, my portion of new homebuyers, sellers, and realtors might hate the increased hassle. In my opinion, there is nothing wrong in trying to achieve a better and a healthy housing market as it will be more stable and helpful for the country’s housing market. These changes might be not as good for the young people and new immigrants as these changes will make it difficult for to become homeowners in Canada.
Let us wait and see what 2018 has in store for the housing market and what possible results will these changes provide, the clock is ticking, make sure you make the right decision and never rush into a decision, think wisely.