So the sun still came out today, Oct 17th, 2016
even with the new Mortgage Rules coming into affect. What shocked me more today
is the amount of Albertans that did not know it was coming… it is all I have
seen in my news feed. But that is probably more due to the fact that I am in
the industry than anything else. In that same breath, I have been posting about
it since the announcement on Oct 3ed, 2016. We have all been to caught up in the US Election & the information for the new Carbon pricing, is my first
thought, and totally understandable.
Lets do a bit of a recap for what came into affect today;
the 5 year Bank of Canada Rate is now going to be used to qualify all high
ratio insured mortgages. In simple terms; your mortgage currently will have to
qualify at 4.64%, even thought your actual payments will be based on an
interest rate much less than that. Our Government is calling it a "Stress Test" for all high ratio mortgages. I understand where this will cause some stress to Homebuyers in our Alberta market, as it has just significantly reduced their
buying power, in some cases by 20%. However lets take a step back here, and hold
onto your hats, as I am sure this is not going to be the opinion from a
majority of brokers.
I remember one of my first mortgages being at 6.25% and then
another at 5.25% and I remember thinking at the time, those were awesome rates!
Average discounted rates (taken from Dec of each year) is about 4.09% in the
last 14 years and that is due to some record low rates starting about 2012, when
the Bank of Montreal first announced their 2.99% rate. At the time it was an all time low
for 5 year fixed mortgages and everyone was happy including myself – it made it
easier to qualify for a mortgage. This was on the tails of the Government
announcing changes in the amortization for high ratio mortgages from 30 down to
25 as well as changes to the TDS/GDS (total debt and gross debt) service ratios allowed when qualifying the mortgage. It allowed people to still get into homes,
and in my opinion, the banks to showed the government that they did not control
how they chose to lend or at what rate. As this was also on the tail of the
2011 announcement in regards to Home Equity Lines of Credit and Credit card min
payments, how they were used to qualify on the high ratio mortgages.
Do you remember the 2010 announcements? We had to change how
mortgages qualified then as well. The Variable rates and the 1-4 year fixed rate mortgages, all had to change to use the Bank of Canada rate to qualify, which if memory serves was at 6.10% at the
time. Currently for those same 1-4 year fixed rates and variable mortgages we qualify at current BOC rate of 4.64%.
Did any of this stop the housing market? Short answer no.
The world kept spinning and people kept buying and selling. The worry for high
ratio mortgages being qualified at 2.39% for 5 years is what happens to “Mr and
Mrs Homeowner” after the 5 year mark, if rates do increase. In Alberta for sure
there have not been a lot of significant increases to wage for families, and
with this new Carbon Tax seems like the bills will just be getting larger. So
what happens if that mortgage payment starts to get to high at renewal? The Government cannot
control how the banks lend their own money (which I have heard suggested several times), which is the power of big business,
ie Credit Cards and lines of credit etc … but they can control their own
Government money backed insurance plans. And we have been seeing this heavy hand since 2008 with the loss of the 100% financing and 40 year amortizations.
My issues stems from how it was released and some of the reasoning
behind the changes announced. The largest being that it needs to stop a
National Housing Crisis (ie Vancouver and Toronto markets), when Canada does
not have a National Housing Market. The housing markets from Vancouver to
Alberta, and Saskatchewan to Ontario are so vastly different they cannot even
be spoken about in the same sentence. What is good for the goose is not what is
good for the gander in this case.
Changes that have already been made to those inflated markets and there
is already some slow down; Vancouver has noticed a decrease and maybe that tax
should have been added to the Toronto market before these other changes were
implemented. Or that we all should have had more time to assimilate the changes
– not just 14 days. Ramming change down the populations throat is not the best way to help smooth out a problem, in my opinion. Besides the fact that Government backed insurance has been a huge coffer increase to the government, since the default rates are actually not very high.
We can debate all day long how it should have been done or
not have been done. But it is done and houses will still be bought and sold and
mortgages will still be in place. Now more than ever I think that Homebuyers
need the advice and guidance of a professional licensed mortgage broker – it is
what we are here for. Consumers
need to know they still have options, and not just the doom and gloom being
spoken about on the news. As licensed mortgage agents, we will always have options for our clients.... it is what we do... it is what we are good at.... we will continue to be the sun rising every morning for our clients and for our industry. Its what we do!
If you have questions or concerns please I am always here to
answer.
Ariana Leroux
Licensed Mortgage Broker
DLC Brokers for Life
780.952.4087
arianaleroux@gmail.com
