The Office of the Superintendent of Financial Institutions (OSFI) recently released a new set of rules deemed a “stress test” for those looking for a mortgage from one of Canada’s major banks. These new rules are set to “tighten” the process of qualifying for a mortgage in Canada, and may entail widespread effects for both buyers and sellers.
This is what you need to know, and what it could mean for you, in Toronto’s shifting changing real estate market…
The New Mortgage Rules
Strictly speaking, these new rules have been put in place to consistently ensure the financial fortitude of buyers. While, at the same time, mitigating the risk banks might face with buyers who cannot keep up with rising interest rates.
With the new rules, even buyers who put 20% down on a home will be required to prove that they can afford their payments if interest rates were to rise by two percentage points (based on the high end of the Bank of Canada’s five-year benchmarks).
So, less people will be able to get variable-rate mortgages from major banks – but those that do will be better equipped to handle changes in interest rates. But what does this tell us about the market in the coming months?
The Current Market
These proposed changes do not come into effect until January of 2018. Until that point, we are likely to see a sharp increase in the number of buyers who are looking to buy a home and lock into a favourable mortgage.
This could push more people into a position to sell, especially since it presents the opportunity to capitalize on the market before it potentially slows. Due to the fact that rates may skyrocket for some, from 2.79% to 5%, buyers will be motivated to find the right home in a hurry.
What About 2018?
Once implemented, estimates suggest that housing activity may slow by 5 – 10%. This also means that price growth might also suffer, although it is currently hard to tell in what parts of the country this will take root. Rules like these are meant to target larger metropolitan areas, but it may have adverse effects on areas outside of major cities (like the Greater Toronto Area, for example).
Understanding Risk and Opportunity
When it comes down to it, these rules are all based on the idea of risk. It’s about mitigating risk for the major banks who want to avoid lending to buyers who may not be able to make increased payments. At the same time, it may reduce risk for those looking to buy who have to settle for unregulated lenders – which comes with its own set of risks.
Depending on your situation, now may be the right time to buy before these rules come into effect. By the same token, now may also be the time to sell – and to take advantage of a market that could slow down (in both purchasing price and overall purchases). Need to know your options? You need to access the expertise of a team you can trust.
For over 30 years, our clients have trusted us to minimize risk, offer unbiased opinions, and ensure their best interests are served. In a market like this, we can do the same for you. Contact us today to talk about your needs, by emailing us at niels@christensengroup.ca or calling us at 416-441-2888 ext. 761.
