Understanding the Impact of New Mortgage Rules on Buyers

In October of 2017, the Office of the Superintendent of Financial Institutions (“OSFI”) introduced new mortgage rules that will begin to operate in 2018. These rules are an attempt to cool the Toronto and Vancouver housing markets. However, these rules will have a negative impact on buyers across Canada, particularly first-time homebuyers.

The changes include:

• Stress Test

OSFI has set a new minimum qualifying rate for mortgages, otherwise known as a stress test. The new test will take effect on January 1, 2018, and applies to every homebuyer, regardless of how much they put down as a down payment. The new mortgage stress test provides that buyers with uninsured mortgages will need to prove that they can afford payments based on the greater of the Bank of Canada’s five-year benchmark rate or their contract mortgage rate plus two percentage points.

Previously, it was only those buyers who had a down payment of less than 20% who were required to pass the stress test. With these changes, it doesn’t matter how much down payment you have; the bank will not give you a mortgage if you don’t pass the stress test.

• Restrictions on Reaching the Loan to Value limits

In the past, a lender could partner with another lender to get you a total 80% loan, if you apply for a mortgage with a loan to value (“LTV”) ratio of 80%. This rate compares the size of the loan to the value of the property. That is, the lender can approve you at 60% and find a second lender for the remaining 40% then bundle it together.
The new rules don’t allow federally regulated lenders (such as the big banks) to work around the maximum LTV ratio and other limits on residential mortgages. These restrictions don’t apply to private lenders, though.

For a first-time homebuyer, these strict rules may make it harder to purchase your first home and may mean that you will have to keep renting for a while. According to estimates, the purchasing power of a family will decrease by 21% under these new rules. Economists also say that full implementation of the rules will reduce the demand for housing by up to 10%.

Under the strict rules, you may need to co-sign to qualify. While these new rules will make it more difficult to purchase a home, there are options. We can help you understand how these rules will apply to you, and what options may be available to help you realize your home-buying dream.