Canadian real estate buyers will face tighter mortgage regulations. The Office of the Superintendent of Financial Institutions (OSFI) has published a finalized draft of the B-20 Guidelines. The guidelines go into effect January 1, 2018, and would see regulated financial institutions adopt more strict lending procedures for uninsured mortgages. Here’s the biggest changes consumers will face.
Higher Minimum Qualifying Rate
The new guideline will see uninsured mortgages qualify at a higher rate, a.k.a. you will be stress tested. New rules will see new borrowers qualify at the five-year benchmark rate published by the Bank of Canada (BoC), or the contract rate – whichever is greater. Then they add another 2% on top of that. So that sweet five-year at 2.89% that you found, will be treated like 4.89% when determining how much you can borrow. We already covered how this would impact most markets – which is minimal. Most of the country isn’t maxing out their borrowing room, the exceptions here are Toronto and Vancouver.
“Enhanced” LTV Ratio Limits
All regulated financial institutions must establish loan-to-value (LTV) measurements and limits. This one is a little ambiguous, but each bank must conduct better assessments of the LTV of properties. As well as periodically update these numbers, even if you’re paying your mortgage just fine. In theory, this sounds pretty harsh. In reality, it’s not as bad as it seems. That is, unless home prices make an unlikely fall of more than 20%.
Restrictions on Non-Conventional Lending Arrangements
Regulated financial institutions are no longer allowed to circumvent LTV limits. Some companies have been packaging loans, and other “lending products” that help get around a few LTV issues, including the 20% down payment rule. It’s been a grey area whether they were allowed to do this, but now there’s clear guidelines to reject these kinds of deals. Creative mortgage specialists are going to have to go back to the drawing board.
Overall, prepare for a tighter lending environment. It’ll be interesting to see if this is enough to cool buyer expectations, or if this will lead to the further rise of private lenders. Oh yeah, private lenders aren’t subject to any of this.
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