New mortgage rules could dampen housing market, agents warn
Rules announced this week will make it more difficult for some buyers to afford the home they want
Anna Seifried and Matt McLennan are in the market for their first home — and, the couple hopes, their last one: a place big enough to raise their child in, and close enough to downtown to avoid a long commute.
Real estate agent Ilia Fabbri has been showing Seifried and McLennan listings in the $500,000 to $600,000 range, a target based on the couple's combined income and the hefty down payment they've saved up.
Finance Minister Bill Morneau announced Monday that from now on, all insured mortgages must undergo a "stress test" that ensures a borrower's ability to make their mortgage payments at a higher interest rate.
Effectively, that means borrowers will be tested against their ability to pay their mortgage if actual rates were as high as the big bank's five-year posted mortgage rates, which the Bank of Canada says currently average 4.64 per cent.
It may mean the difference between buying a forever home and a starter home.-Anna Seifried
That requirement was already in place for many borrowers, including so-called "high-ratio" mortgages for people with small down payments, and borrowers who borrowed money on terms under five years.
But from now on, any insured mortgages will be tested against that higher bar.
According to the mortgage website RateHub.ca, a home buyer who now qualifies for a $665,000 mortgage will only be eligible for a $505,000 mortgage under the new regulations.
For Seifried and McLennan, the change will make affording their perfect home that much more difficult.
"It may mean the difference between buying a forever home and a starter home, depending on the prices," said Seifried.
Dampening effect on housing market
Real estate agents say the new regulations could have a dampening effect on the housing market in Ottawa, especially when it comes to starter homes.
"I think the people this will affect the most are people who may have a little bit more debt, whether student loans or otherwise ... because their margins will be narrowed significantly when they are being pre-approved."
Seifried said she still hopes to find her dream home, within the lower qualifying limit.
"We remain optimistic. We are doing our due diligence and seeing lots of houses and we know that we will find the right house eventually."
Anyone who already has a mortgage, or who has already applied for mortgage insurance, is exempt from the new rules, which will formally kick in on Oct. 17.
Some Ottawa real estate agents have started sending notices to clients advising them to beat the deadline and buy now.