It’s a been a while since CMHC mortgage lending rules have been ramped back to more historical levels.
After dabbling in American style 40 year zero down mortgages we decided that might not be the best idea. Unfortunately we never did get the American style locked in interest rate for the full duration of the loan.
So now we’re back to 25 year terms and it’s more difficult to get a loan if you’re self employed. A lot of loan applications that would have been approved a year or two ago are now being rejected.
So what affect has this had on the market so far?
Well apparently the sub-prime lending market in Canada has rocketed to a record level for one.
Capital Corp is a non-bank lender that has been operating since 1988. Their chief executive Eli Dadouch says there’s a lot of money out there for non-bank loans to higher risk borrowers.
He said there is no question it’s the top of the real estate cycle, so anybody lending out money has to be more careful today.
“People always want to deal with a bank, it’s the cheapest form of money,” he said. “When they come to us and people like us, it is because there is some type of story [behind why they can’t get credit]. It’s easy to lend money, the talent in this business is getting it back.”
Read the full article in the Financial Post.
The CEO of the CMHC is saying that although some Canadian house prices are certainly too high, they aren’t worried about a market collapse at this point.
One option they are considering as a way to help cool an overheated market is sharing mortgage loan risk with the banks that are handing out loans.
The mortgage insurance that CMHC and its two competitors sell repays banks when consumers default on their mortgages. At the moment it makes the banks whole. The OECD has called for changes to the system to ensure that lenders take on more of the risk. In other countries with mortgage insurance, the product tends to only cover 10 to 30 per cent of the losses. In his speech, Mr. Siddall said that CMHC is evaluating “risk-sharing with lenders to further confront moral hazard” and is advising the government about its thoughts.
Read the full article here.
Hat-tip to southseacompany.
It’s not just Vancouver house sales that are heading down.
Business confidence in Canada dipped for a fourth month in a row and is now at a 3 year low.
This according to a survey from the Canadian Federation of Independent Business.
The last time it was lower was in July of 2009, when it stood at 58.6.
CFIB chief economist Ted Mallett says the index’s current position in relation to gross domestic product puts it very close to the zero-growth mark, suggesting Canada’s economy is nearing a standstill.
On Tuesday, Statistics Canada reported the economy had grown a disappointing 0.1 per cent in May, leaving the pace of the recovery at slightly below two per cent on an annualized basis.
The CFIB says confidence declined in July even in resource-rich provinces like Alberta, which saw a drop of three points to 70.3.
So taking out a home equity loan to fund your underperforming small business? Maybe not such a good idea unless the revenue is there.
Canadian Mortgage Trends is saying that changes to HELOC loan to value (LTV) limits are a done deal.
If so this means the maximum HELOC you’ll be able will move from 80% to 65% of the total value of the property.
Read the original link for full details. Many commenters there seem to think this is too big a move.
65% is too much of a leap all at once.
I can’t understand why OSFI doesn’t ratchet the LTV ratio down a little more slowly (i.e., 5% at at a time and sit back to observe the consequences).
As has been noted lately, the previous three sets of mortgage tightening guidelines have been gradually working their way through the credit markets effectively.
You can kill an ant with a hand grenade, but it usually makes a hell of a mess.
The Vancouver Sun has some good tips for people who are completely unable to save up for the largest purchase of their life. People who either spend too much on entertainment and shopping or simply don’t earn enough to save. Buy a house.
Yes. Because the people that should be buying real estate are people who are unable to save up a few thousand dollars.
Their advice ranges from the ridiculous (reign in spending habits) to the sublime (ask mommy and daddy for a down payment).
Saving money for a down payment, especially in British Columbia’s high-priced housing markets, is one of the biggest challenges that homeowners face, but mortgage experts say, it’s not impossible.
The minimum down payment new homeowners need is five per cent of a home’s purchase price, which can be particularly difficult to accumulate for those in the most need: young people, often with student debt and lifestyles that involve a lot of restaurant meals and going to movies once or twice a week.
Yeah, that’s 5 percent goal is super-tough, but it just might be achievable according to ‘mortgage experts’. You can always tap into your RRSPs, and don’t forget that you can get yourself a zero-down loan (we call them ‘cash-back’ mortgages).
…some lenders have a cashback option that can be used against a down payment. “The clients have to take posted rates [not discounted] and some lenders will give you five per cent of the mortgage amount as cash back. On $400,000 that would be $20,000, the five-per-cent down payment that is required.”