Ottawa’s new mortgage rules that come into effect January 2018 will shut out 40,000 to 50,000 Canadians from the housing market altogether, according to a new report from Mortgage Professionals Canada, an industry group that represents approximately 11,500 mortgage brokers, lenders and insurers.
Roughly 700,000 homes are bought in Canada every year — the report estimates that 18 percent of prospective buyers will fail the federal government’s latest mortgage “stress test” requirements, effectively disqualifying about 100,000 buyers from their preferred home purchase option.
“Perhaps 50,000 to 60,000 per year will be able to make a different purchase, albeit one that is less attractive to them but perhaps 40,000 to 50,000 per year will be entirely removed from homeownership,” stated the report.
From January 2018 onwards, uninsured borrowers — those who have a downpayment of 20 percent or more — will be required to financially prove that they can afford a mortgage rate of two percentage points more than what they would have originally qualified for.
As an example, if you’re looking to obtain a mortgage with a fixed rate of say 3.10 percent, you would actually have to demonstrate to your lender that your present income enables you to afford a rate of 5.10 percent.
“The market is already slowing under the weight of increased interest rates, and policies aimed at suppressing the market further might be adding to economic risks,” said Will Dunning, chief economist for the association and author of the report.
“By the time of the next federal election, 200,000 Canadian families will have experienced the sharp disappointment of failing the newly-implemented stress test, even though they can afford to borrow the amount they need.”
Dunning projects that it is young, middle-class Canadians searching for their first home that are most likely to be impacted specifically by this set of mortgage rules, even though the market as a whole might remain steady.
Data from the MPC report shows that the percentage of first-time homebuyers with a downpayment of less than 20 percent has in fact decreased over time. Between 2010 and 2013 roughly 56 percent had a deposit of less than 20 percent; by 2017, that number had declined to 42 percent.
These numbers are to some extent, counter-intuitive, considering that home prices have gone up substantially in Toronto and Vancouver. But one explanation could be the rising number of young people who receive some portion of a down payment from their parents.
The report’s data, in fact, supports this hypothesis — between 2010 and 2013, 23 percent first-time home buyers received a “gift from parents or a family member” as a down payment source. In the 2014-2017 period, that number had notably risen to 43 percent.
In Toronto, there has been some speculation that the new mortgage requirements could catalyse a year-end buying spree, propelling the housing market out of the doldrums it has been in since April, when the provincial government imposed a 15 percent tax on foreign buyers.
But evidence of that is at best, scant. The average price for all home types in the Greater Toronto Area, continued its downward trend in November, settling at $761,757, a 2.35 percent decrease from October.
“People are going to take a wait-and-see approach, to see how these rules play out,” Toronto realtor David Fleming told VICE Money.
“Call me a salesman, but I personally don’t think these mortgage rules will have a measurable effect. I think the market will pick up from March onwards, and this change will just be seen as another one of a dozen policy changes.”