October 2016 Mortgage Update

The federal government recently announced changes to rules regarding mortgage financing. As of October 17^th, 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.