Mortgage rules expected to take out some buyers
Daily News Staff Reporter
Professionals in the Kamloops housing business said Thursday another round of mortgage tightening by the federal Conservative government will take some buyers out of the market.
Finance Minister Jim Flaherty announced a four-part measure in a bid to stop housing speculation and price increases that have taken hold in some large urban Canadian markets.
The biggest of those is a move back to traditional 25-year amortizations, which spiraled to as high as 40 years in the boom years of the past decade. But the Bank of Canada and other agencies have expressed continued concerns that Canadians cannot curb their habit for ever-higher debts.
“It’s a question of trying to moderate behaviour and I hope Canadians will reflect before they jump into a market at the high end,” Flaherty said.
Rules also cap so-called HELOCs (home equity line of credit) at 80 per cent, down from 85 per cent. At one point before the last recession, home buyers were able to borrow back as much as 95 per cent of the value of their home.
Those purchasing homes worth more than $1 million won’t be eligible for mortgage insurance, meaning at least a 20 per cent downpayment.
Ottawa estimates changes will mean about five per cent of Canadians who might be considering purchasing a home will no longer be eligible.
Kamloops mortgage broker Star Webb said she and other lenders will go back through pending deals to determine which will have to requalify and which slip under the deadline.
“That’s the job of mortgage brokers in the next few days… . And maybe it will be breaking some bad news.”
Webb said one of her clients is purchasing a $380,000 home, slightly higher than the median price here. The couple’s pending mortgage stands to increase by about $192 a month.
“I’ll go back through their file and see their comfort level,” she said, noting $192 a month “is a lot of money.”
Two other changes will also affect buyers. Rules will ensure buyers do have limits on gross and total debt ratios.
Dave Peressini, president of Kamloops and District Real Estate Association, agreed the tightening will affect some buyers on the margin. Despite that, he doesn’t believe the changes will have a major impact on the market.
“If you’re going to buy a $300,000 house, you might now qualify for $280,000. I don’t think it will be a huge impact but it will make some difference.”
In the short term, Peressini said history of earlier tightening moves has shown it will likely cause a surge of activity in the short term as buyers move to get in under the old rules.
Also on Thursday, Bank of Canada governor Mark Carney warned the Canadian economy is slowing. Relatively strong performance since the last recession has been fuelled by debt, particularly households borrowing for homes, cars and other large purchases.
Carney said that’s why Flaherty clamped down on mortgage rules.