New Regulations Make Getting A Mortgage In Canada Tougher.
Canadian homebuyers need to prepare for a new reality starting November 1, 2016 when getting a mortgage. The nation’s financial regulator announced new regulations impacting banks and lenders in mid-September.
The proposed regulations are draft guidelines and are up for comment until October 18th, but if upheld will lead to a tougher mortgage climate.
Take a look at how these regulations work and just what they may mean for you when you get your next mortgage.
Hot markets prompt tougher rules for banks
In the last year, policymakers have warned that Canada’s housing market is overvalued in some cities, such as Vancouver and Toronto. As such, the current Liberal government has been keen to limit taxpayer exposure to any potential price correction and real estate market downturn. For months, Federal Finance Minister Bill Morneau and the government-owned mortgage insurer, Canada Mortgage & Housing Corp. (CMHC) have been floating the idea of prompting lenders to hold more capital for residential mortgages to protect against defaults.
Taxypayer will be less exposed
The aim of these new regulations is to put more of the onus on banks. By requiring lenders to hold back more money in their own reserves—to cover potential defaults, should markets correct and prices fall—OSFI is reducing taxpayer’s risk at having to cover a shortfall and putting more responsibility on mortgage lenders.
How it will impact the Canadian home buyer
As a federal regulator, OSFI’s requirement will impact banks and lenders across Canada. This means buyers in all market will feel the impact of these changes, not just home buyers in hot markets, such as Toronto and Vancouver.
Banks and mortgage lenders will pass down the extra costs of these stricter regulations to the end user. This is done by either increasing mortgage rates or implementing tougher lending requirements for those applying for a mortgage.
For the average Canadian home buyer, then, this could mean that as early as November, it will either be:
→ harder to get a mortgage
→ mortgage rates will start to rise (even slightly)
→ or you won’t qualify for as large a mortgage as you would’ve prior to these new rules.
– via MoneySense
Additional Measures Could Be On The Way!
The Office of Superintendent of Financial Institutions (OSFI) has a goal of shifting the burden of risk from taxpayers to banks. They made their intentions known in December of 2015.
The first measures went into effect in early 2016, now these new guidelines could take effect as soon as November 1st.
The roaring housing markets in Toronto and Vancouver are largely behind the government’s concern. If the new measures don’t bring the sense of control that OSFI is seeking what could be next for homebuyers when getting a mortgage in Canada?
Morneau said this week additional measures may be needed to manage the risks associated with the “highly charged” Vancouver and Toronto housing markets, even after British Columbia imposed a 15 percent tax on foreign buyers to curb price gains.
Under current guidelines, lenders are required to maintain a certain amount of capital to back mortgages, as well as to comply with OSFI risk-mitigation rules.
Under the proposed rules, if OSFI determines a lender isn’t following policy, it may reconsider whether its mortgage insurance adequately covers the loan risk, prompting the lender to take further steps, including shoring up capital.
– via Bloomberg.com
Are you planning to look for a mortgage in Canada soon?