This is the second part of this two-part series on the impact of government intervention designed to make mortgage qualification much more difficult. The proposals if put into effect are entirely unnecessary since the real estate and mortgage markets have already contracted. MOST IMPORTANTLY the proposed changes will dramatically affect everyone.
Affordability will decrease by over 20% as you will need to qualify based on a rate 200 basis points or two per cent above the contract or commitment rate. Using current rates of 2.89% you will need to debt service using 4.89%.
Let’s say you qualify today for a $500,000 purchase price with 20% ($100,000) down today and a $400K mortgage. The new regulations will qualify you for a maximum $320,000 mortgage only and you will be required to make a down payment of $180,000 or $80,000 higher. If you cannot come up with $180,000 down, you will need to lower your purchase price expectation to $420,000 from $500,000. To repeat, this regulation change will apply to everyone.
THE IMPACT WILL BE EXTREMELY SIGNIFICANT since it will affect all mortgages not just purchases including refinances.
The result will mean fewer home purchases, purchases at lower prices and fewer refinances. Approvals of refinance mortgages will drop dramatically as well, forcing people into second mortgages, higher interest lines of credit, loans and credit card borrowing.
Single income households (one spouse working), households with worrisome credit card debt, single parents, retirees and the disabled on fixed incomes will be impacted the most and either qualify for much less or not at all. Some will also be forced to sell their homes longer term.
In short, the proposed new changes will hurt every one without a doubt.
In the bigger scheme, the real estate market will be impacted very negatively.
The new restrictions can and likely will be introduced (like last time) without warning or at least with very short notice.
We apologize for being the bearer of such alarming news, however we are compelled to warn and inform Canadians so that you can act before it is too late.
PLEASE CALL US AS SOON AS POSSIBLE to make an appointment to take care of your needs and PLEASE SPREAD THIS TO ALL YOU KNOW WHO INTEND TO PURCHASE OR REFINANCE. THANK YOU.