Changes Ahead in Lending Guidelines and Mortgage Qualifications
Where there is smoke there is fire, I guess, as the much talked about changes to CMHC lending guidelines were passed down this morning. The three changes are noted across the way, and as such, represent a hit to 3 different types of mortgage financing; refinancing, revenue property purchases, and first time home buyers!
It is believed that the refinancing reduction to 90% will hit the hardest, as equity growth in the past few years has been minimal at best, if not negative, and this reduction in availability of funds from the owner occupied home will all but eliminate those new buyers from obtaining any back up financing from their home.
To be honest, the second change will have little impact on most people, as I personally have not done a CMHC insured Revenue property mortgage in years! Most people are buying homes a "second homes", a product not touched yet by CMHC, and/or coming up with the 20% down to avoid CMHC. The CMHC premiums were expensive, and some of the guidelines, such as rental coverage, tough to make work in the current cost environment! This will have little or no effect on regular home buyers in my opinion, and is only put in place to stop investors, speculators from buying up a bunch of homes believing the market will increase suddenly here in the near future.
The third change, qualifying on a 5 year term versus the current 3 year term, will have a small impact, particularly on first time home buyers, in effect raising the qualifying rate from 3.50% currently to 3.89%! Whilst it will affect our qualifying ratios - it will do so only slightly.
Surprisingly, I would consider these changes minor under the current lending environment we operate under! However, what it does signal is a preparation in the near future for rates to be increased, and probably significantly, and it has the Government and Banking Institutions worried about the ramifications of this on an economy stalled right now in terms of growth and job creation.
I look to further changes down the road, and would not put it past the government to reduce the top lending tier to 90% from 95% if the housing markets continue to spiral upward, and the all important "AFFORDABILITY" index continues to show the average household is expending to much on housing alone!
Hopefully these small changes and interest rate hikes will accomplish the same thing without MAJOR decreases in availability for first time home buyers. I can see the return of 95% lending availability for ONLY first time home buyers, and the elimination of the 95% program for any repeat home owners.
Stay tuned, there is never a dull moment in the Real Estate Industry at the moment, so much of our economy rides on the stability of this market, the government is determined to get ahead of any disasters that might befall us like our neighbors to the south!