New mortgage rules April 19th

The Federal Government has just announced their anticipated changes to insured mortgage rules to prevent a Canadian housing bubble (which they see no evidence of yet).

The key changes are:

– borrowers must qualify for the 5 year rate even if they opt for a shorter term.

– on refinancing, the maximum amount of equity withdrawal is reduced from 95% to 90%.

– non owner occupied residences bought for speculation now require a 20% down payment.

More info in this Reuters article. There’s still time to buy (or sell) under the old rules, but you better hurry!

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asp
Member
asp
6 years 5 months ago

"non owner occupied residences bought for speculation"

What are the real rules here? do they have some magic formula to decide if a given purchase is for speculation?

Or is that just a editorial comment, and the rule will apply to all non owner occupied properties, regardless of the motivation for the purchase? Perhaps we will have to wait 'til April to see.

Dave
Member
6 years 5 months ago

These are good and prudent changes.

blueskies
Guest
blueskies
6 years 5 months ago

we all knew this was coming…. no big surprise here

joycer
Guest
joycer
6 years 5 months ago

So in addition to "beat the HST", we can expect to hear:

"There’s still time to buy under the old rules, but you better hurry!".

How about this one, "There's still time to screw yourself if you believe everything you read"

blueskies
Guest
blueskies
6 years 5 months ago

What are the real rules here? do they have some magic formula to decide if a given purchase is for speculation?

if you already own a home and leverage the equity to buy another you are a speculator……

mino3
Guest
mino3
6 years 5 months ago

This is a band-aid on a 3rd degree burn.

patriotz
Member
6 years 5 months ago

@asp:

do they have some magic formula to decide if a given purchase is for speculation?

I do. If the rental income does not cover monthly ownership costs, you are a speculator.

Thus all buyers of investment RE in Vancouver today are speculators.

joycer
Guest
joycer
6 years 5 months ago

Here's an interesting exercise:
http://www.cmhc-schl.gc.ca/en/co/buho/buho_007.cf

Put in 5800/month gross (70K annual ~ average). 35 year ammortization, 2% variable rate, monthly taxes of $300, and heat at $200.

Maximum mortgage = 410K

Now change interest rate to 4% fixed 5-year and the maximum becomes: 307K

However you change the monthly income, the difference is the same percentage, 25%. For example, at 10,000/month you can get a maximum (variable rate) of 816K vs. 612K on fixed 5 year.

Dave
Member
6 years 5 months ago

@blueskies:

I don't agree. Lots of people with long term prudent outlooks leverage the equity in their primary home for second home investments. That doesn't make them speculators.

observer
Guest
observer
6 years 5 months ago

Here are some other definitions:

You are a bank sponsored speculator if buy and sell a property within 5 years, which not your principal residence and for which you took out a mortgage to purchase.

You are a CMHC sponsored speculator if you are a speculator and your mortgage is insured by CMHC.

What is necessary to return the market to health is to reduced the number of sponsored speculators because they carry systemic risk to our economy.

Carioca Canuck
Guest
Carioca Canuck
6 years 5 months ago

These "changes" are nothing more than window dressing.

gvrdpropertyowner
Guest
gvrdpropertyowner
6 years 5 months ago

If CMHC was abolished there would be no need for any of this. All we need to do is let the banks assume the risk for the loans that they approve— including mortgages.

domus
Guest
domus
6 years 5 months ago
So, I have now heard and gone through these measures. I believe they amount to a smokescreen, but there is NO substantial change from the status quo. In particular: – using a 5-year fixed mortgage to qualify borrowers will result in 'inflated' income and some creative 'accounting'; brokers will get around that rule in no time. The only sensible thing to reduce borrowing would be to INCREASE the downpayment: there would be no getting around that, no mortgage broker could help you cheat. The government has chosen not to do that. They WILL pay for it in due time; –… Read more »
patriotz
Member
6 years 5 months ago
@gvrdpropertyowner: All we need to do is let the banks assume the risk for the loans that they approve— including mortgages. Um, the problem is that the taxpayers are assuming the risk for the banks. As in CDIC. That is, we are guaranteeing the banks' borrowing, whether or not we are guaranteeing their lending. The government has every right to regulate bank lending because the taxpayers are the ultimate bagholders. Non-bank, non-insured lenders can and do make mortgage loans on any terms they like. It's their money and they can do what they want with it. Funny thing though, they… Read more »
Drachen
Member
6 years 5 months ago

@joycer:

"How about this one, “There’s still time to screw yourself if you believe everything you read” "

Nah, too much effort for most people, they'd rather just drop the soap in a prison filled with Real Estate agents and have them do the screwing, for a commission of course!

Drachen
Member
6 years 5 months ago

These may be harsh enough measures to keep the market afloat until April, Real Estate agents will be working their asses off to sell before then and some people will want to buy before the new rules. If there is a surge in activity though it will mean an even steeper drop after April as the last of the future demand (at these prices) is used up.

mathematics
Guest
mathematics
6 years 5 months ago

It's just mathematics, demand has been weakened. The measure of qualifying for 5 year term will affect the Vancouver market, possibly in a material way considering reports of how many people are barely qualifying. There was an article in the Straight over the last year were the couple said the only reason they could get in was the variable rate mortgage, if rates doubled (to something like 4%), they said something like, "we're dead".

observer
Guest
observer
6 years 5 months ago
@domus: Sounds like you are predicting a true subprime situation here, whereby lenders start to lend to subprime borrowers under the new regulations. Worst in fact because in the US, at least they were acknowledged as subprime, rather than under the black market subprime. I guess it all boils down to how well the government can enforce these rules. Fixed rates are still well below historical norms so there is still plenty of risk in the system even after these changes. And I still laugh every time I hear the the CMHC is insuring mortgages for investment properties without any… Read more »
White Payer
Guest
White Payer
6 years 5 months ago

I just got pre-approved yesterday. According to the "experts", I can buy a $700,000 house with 10% down on a 30 year term with my $93,000/year salary. Isn't that just about what the Van income/price multiple is?

hackmare
Guest
hackmare
6 years 5 months ago

@Dave:

If you buy ANY property that is not your primary residence or a recreational property, then you are an investor. The word investor is a pretty synonym for speculator.

Loud Speaker
Guest
Loud Speaker
6 years 5 months ago

@blueskies: Thanks for providing price cap on the real estate and making it stronger than ever before,Most of the Olympics visitors talk less about games and show more of their desire to have a place to live in downtown and Vancouver.New mortgage rules will bring death to already DEAD BEARS CASE.Thanks for your hard work through last decade.

Question:What is the benefit of seeing future in advance.

Answer:So we can change it accordingly to reduce risks and damages.

Message:Enjoy the games and buy downtown/Vancouver condo without fear because nomore downturn in decades to come in the Olympics City 2010 best planet place.

rp
Member
rp
6 years 5 months ago
The rule that you have to qualify for the 5 year rate is good. It would be shockingly irresponsible of anyone to buy on the basis of current variable rates. But 5 year fixed rates are under 4%, which isn't much of a buffer for a 25-35 year term. The 20% down rule seems like it could be a wash, depending on who is or is not considered a speculator. If rental income covers the mortgage it seems like you're not a speculator. But I don't understand why the government would lend money to this type of business and not… Read more »
vreaa
Member
6 years 5 months ago
@patriotz: "Thus all buyers of investment RE in Vancouver today are speculators." — I agree. Another way of putting this is to ask how many people would be buying at these price levels if they KNEW that prices would be flat to down. Answer: Almost none. Therefore, there is future price increase speculation in almost EVERY purchase. A related topic is how demand will respond to dropping prices. The bulls think folks will step in and buy. Many of us think that dropping prices will bring in cash-out/run-for-the-exits supply and FALLING demand as the speculative component of the price becomes… Read more »
VanRant
Member
VanRant
6 years 5 months ago

Too little too late. Bubble will burst in coming months.

DaMann
Member
DaMann
6 years 5 months ago
So essentially with the new CMHC rules the did nothing… A whole lot of lip service so when the bubble pops they can say "well we tried" 20% rule for investment properties? They shouldn't even be insuring anything other than someone's primary residence. They have no business insuring investment or recreation properties. Talk about forgetting what your mandate was!!! I was hoping for at least 30 year morts with 10% down. Qualifying for 5 year rates will do nothing, the banks will just fudge the numbers to make things work. They have nothing to lose by feeding people mortgages they… Read more »
Borat
Guest
Borat
6 years 5 months ago
I think these changes will have an effect. Not because they are substantive per se (as Domus pointed out there will just be even more 'creative accounting) but because the market it driven by subjectivity rather than objectivity. Up until recently the proverbial man on the street throught prices would go up & up in the next few years due to [INSERT WEAK REASONING HERE]. Now I don't hear that anymore – even Realtors are saying prices will 'stabilize' and that the price gains of the last few years cannot continue. That is, the generally accepted perception is that we… Read more »
Drachen
Member
6 years 5 months ago

@White Payer:

Your approved ratio is 7.5, Vancouver median is a 9.

patriotz
Member
6 years 5 months ago
@hackmare: The word investor is a pretty synonym for speculator. Replace "synonym" with "euphemism". A speculator is someone who can only get a positive return from capital gains. If you buy a CSB, for example, you're an investor, but you can't be a speculator because they always sell for face value, i.e. there are no capital gains possible. Similarly, if you invest in RE that will provide you with a positive return without selling it for a capital gain – in other words it's cash flow positive on rental income – you're not a speculator. We have a word for… Read more »
vreaa
Member
6 years 5 months ago

The very idea that there may be individuals in Vancouver who have extracted funds out of properties up to 95% of their current inflated values is completely mind-boggling. 90% is still speculation of the highest degree.

vreaa
Member
6 years 5 months ago

“I just got pre-approved yesterday. According to the “experts”, I can buy a $700,000 house with 10% down on a 30 year term with my $93,000/year salary."

At the current average Vancouver price/income multiple of 9.3, White Payer would be able to buy a property for $865,000.

Loud Speaker
Guest
Loud Speaker
6 years 5 months ago

@averagejoe86: Because you think this is something new but not because these following rules are already implimented begining july 2009.

BUYING

Principle Residence:10%-20% down payments

Revenue property:35% down payments firm on purchased prices despite gain or lost in purchase values.

Too little too late and too bad for RE Bears who did not buy anything since 2001.

realpaul
Guest
realpaul
6 years 5 months ago

#6 M If you put a bandage on a third degree burn it will fester.

"This will help Canadians prepare for higher interest rates. One must always guard against the temptation take on more financial risk simply because interest rates are lower.”

This move by Captain Crash Flaherty is like the alternative eb=nding to Thelma and Louise where Thelma tries to brake as the back wheels leave the edge of the cliff.

Any rise in rates are going to put a huge number of FTBs underwater.

Wilma
Guest
Wilma
6 years 5 months ago

Olympic Accomodation not so good after all

Even the athletes' accommodation at Whistler came under fire.

"DON'T SNORE — 'THE WALLS ARE AS THIN AS CURTAINS,' Athletes and coaches slam Olympic Village accommodation," reads a headline on Germany‚'s Bild.com.

http://www.bild.de/BILD/news/bild-english/sport-n

pricedoutfornow
Guest
pricedoutfornow
6 years 5 months ago

@Wilma:

WTF? Shoddy accommodation? But I thought these units were supposed to sell for $$$$$ after the Olympics? And what's this about sharing a washroom? So…I'm supposed to pay $500k for a condo and then don't even get my own washroom? What a load of c**p!

joycer
Guest
joycer
6 years 5 months ago
#29/30 "banks will still offer a lot to buyers under the new rules. White Payer (vancouvercondo.info 16 Feb 2010 at 10:11 am) would likely still get offered the terms they describe here" 10% down = a CMHC mortgage, not one the banks would put on their books. Do your homework, banks have taken on almost no new mortgages since the credit crisis began. Yet overall mortgage debt has ballooned to new records. Reason, banks aren't lending they are just passing the mortgage off to the CMHC. Actions speak louder than words. The banks are saying it's a great time to… Read more »
/dev/null
Member
/dev/null
6 years 5 months ago

@domus: The government has chosen not to do that. They WILL pay for it in due time

Have to disagree with you, domus. (Only on this point.) Canadians generally think everything is fine with the housing market and so they will see this as cautious preventative measures, just like that nice Mr. Flaherty is telling us. The myth of fiscally conservative Conservatives will continue.

realpaul
Guest
realpaul
6 years 5 months ago
#36 pofn, We all heard that the bldg quality was absolute shit as it was being slapped together. Obviously there is no insulation in the walls or floors, they didn't wrap the pipes or bother to fit the doors. Apparently the ensuite bathrooms were sacrificed for speed. There is an ongoing issue with water intrusion on the site and in the parking garage. Sweepers are going around with brooms. I also heard recently the putting the wino's back into the 250 social housing units is back on the table. Who did you say was going to pay $$$$$$$$$ for that… Read more »
Vansanity
Guest
Vansanity
6 years 5 months ago
I do not agree that these rules will do nothing. The bottom line is that it will reduce the amount of debt that can continue to fuel this bubble. No matter how you cut it, the overall amount of debt that can go into the market, will be reduced. Thus reducing overall demand and limiting affordability. All of which are positives for dilligent savers that haven't bought into the bubble hype. However, I agree with one poster that this bubble would implode on itself regardless of any rules. I think this helps with the "Perfect Storm" scenario that so many… Read more »
patriotz
Member
6 years 5 months ago

@/dev/null:

The myth of fiscally conservative Conservatives will continue

Only until the house of cards comes down. The Cons knew that all along, but they thought a majority in the last election would give them 5 years for the voters to forget about it. That didn't happen, and it doesn't look like they have any plan B, other than to keep pretending everything is fine.

Vansanity
Guest
Vansanity
6 years 5 months ago

Out of curiousity I just ran our current available mortgage for a variable rate vs. a 5 year fixed term. The 5 year fixed term was a 22.45% decrease from the variable rate.

realpaul
Guest
realpaul
6 years 5 months ago
Mortgage Brokers still selling the 'its going to go up forever' story. Mortgage broker Jas Grewal said one group that will be affected by this is recent buyers who made a small down payment and are struggling with high credit card balances and other debts. By folding these debts into their mortgage, they can reduce their interest rate from as high as 19 per cent down to something closer to 3 or 4 per cent. “Let's say you put 10 per cent down – if we go from 95 to 90 per cent, you're not going to be able refinance,”… Read more »
Aleks
Guest
Aleks
6 years 5 months ago
The idea that pre-qualifying borrowers for a fixed-term mortgage at historically low interest rates will protect them from interest rate hikes is laughable. Even if they get a five-year fixed rate mortgage, they'still in serious (in fact, nearly certain) danger of paying a higher rate on the subsequent 25 years of the mortgage. But if they do what Flaherty is talking about and qualify for a fixed rate mortgage at today's rates and then take out a variable rate mortgage, it offers no protection. Because by the time their variable rate goes up and they want to re-finance into a… Read more »
Supraboy
Guest
Supraboy
6 years 5 months ago

You people should chill out and watch the olympics. Anyone going to the game at 4:30? Any guess as to whether canada can put in 10 goals or more?

Starving Artist
Guest
Starving Artist
6 years 5 months ago

“Let’s say you put 10 per cent down – if we go from 95 to 90 per cent, you’re not going to be able refinance,” Mr. Grewal said. “You’re going to have to wait until your house value goes up and gives you some equity.”

LOL I like how rising value is just a given. "New Paradigm" indeed.

logic
Guest
logic
6 years 5 months ago

supra, you had better hope they don't, as you will run out of fingers…

Mansur al-Hallaj
Member
6 years 5 months ago

It's mind-exploding how the Government is wiggling and struggling and covering their eyes in successful attempts to UNSEE the way out. They are doing tons of unbelievable tricks instead of letting only those access the market, who have one single solid, reasonable tool: money. Not credit, money.

WHY are they doing it? No really, I have no idea how the Government works – why are they not going the simple way? Who benefits, and how?

richasian
Guest
richasian
6 years 5 months ago

It's real simple bears rich people like me need forenting loser like you to pay mortgage forever. New mortgage rules only keep you out of the market and me in it making money so I'm good with that. Happy times forever for me and sad times for you.

Everyone buy condo during games since it's so good weather.

Rich Scotsman
Guest
Rich Scotsman
6 years 5 months ago

49

It is really simple rich asian attempting to project imaginary wealth – rich locals like me need either unintelligent foreign capital to buy my place allow me to cash out with windfall gains or waves of underemployed, cash poor immigrants to rent my squalid houses….

Either way, I benefit from the wannabe rich asian culture that seeks to project non-existent wealth at all costs…

VanRant
Member
VanRant
6 years 5 months ago

Flaherty is either a liar or incompetent! He has to step down however it may be too late. The bubble is going to burst after the Olympics

patriotz
Member
6 years 5 months ago
@averagejoe86: I agree that BC is going to crash and burn, but it's not really about BC. There are only a couple of ridings in the province that change hands between the Cons and the Liberals, so the fallout is not going to amount to much in the big picture. What the Cons are really worried about is a BC-style crash and burn in metro Toronto, particularly in "905" (outside City of Toronto). This is where federal elections are decided. I think they are trying to engineer a "soft landing" in that region (by which I mean a descent not… Read more »
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