New mortgage regulations change the course of action
Since the new mortgage regulations of October 2017 have introduced, we’ve been asked the same question over and over again: is it better to buy by the end of 2017, or wait it out? Which would be the smartest move in the light of the new mortgage regulations? Eventually, some of our clients have rushed to buy a home before the year end while others took the time to watch the market closely. We are here to analyze why they chosen such a contradicting course of action.
Who is not affected by the new mortgage regulations?
The new mortgage regulations come in effect in 2018, and apply a stress test of 4.99% OR higher (the real rate +2%) on all mortgages. This means that all mortgages will be subjects to a stress test, not only high ratio mortgages that are above 80% financing. Clients who successfully pass this test will be able to access rates at the range of 3%.
It looks like a major change, but in effect, it will be felt by few. 90% of our mortgages are variable rate mortgages that have been using the stress test similar to the new mortgage regulations for two years now.
Below are individuals who will not be affected:
- No changes for those renewing an existing mortgage, as is.
- No changes for those buying with less than a 20% down payment.
- Those who are qualified for a variable mortgage.
Who is affected by the new mortgage regulations?
Those who will be affected by the new mortgage regulations are individuals who want to purchase or access their equity, and can only be qualified through a fixed rate. However, we have strategies and an access to a variety of lenders to navigate the mortgage process for these clients. This includes access to institutions that would not apply the stress test – in fact, only around 5% of Sneg Mortgage Team clients will be affected.
Consequently, you can imagine that the answer to each of my clients has been diverse. A small portion of my clients were encouraged to act immediately. For them, the new mortgage regulations and the stress test took them from a level of 600K in 2017 to 450K in January 2018.
Special attention has been given to clients who buy a pre-sale set to be completed during 2018. We have lenders that treat pre-sales that are signed now with particular care. All contracts that have been signed by December 2017, but may be completed during 2018, are not subject to the new mortgage regulations. They are to be honored under the old regulations.
New mortgage regulations –new opportunities
Saying that, my advice to most of my clients was to wait. Assuming the reduction in borrowing power will affect the market the way the government wishes, and purchase prices will go lower, there will be clients that will benefit by waiting.
If you are a buyer in the 500K – 1M$ zone and are specifically in the market for condos or townhouses, watch for some opportunities in January 2018, as the market might soften slightly. Those buyers will buy exactly what they want for a lower price, in a less competitive market, and may even get lucky with no bidding wars. Following the new mortgage regulations, we might as well go into a “no supply” phase, where house owners hold back and decide not to list their properties until the market recovers. This market goes back to be sellers’ market.
Let’s see what January 2018 brings on. Happy New Year!