Tighter Mortgage Rules Come into Force

It is on October 17, 2016 that the new mortgage rules took effect. The Canada Mortgage and Housing Corporation (CMHC) has thus tightened the conditions for obtaining an insurable housing loan, in other words, a loan with a down payment of less than 20% of the property value.

In the case of an insured mortgage, rather than relying on the rates calculated by financial institutions to determine the maximum borrowing capacity, from now on, calculations must be made according to the conventional five year fixed rate posted by the Bank of Canada. Currently at 4.64%, this rate represents an increase of over 2% for buyers targeted by this measure.

Ultimately, with this change, the goal of the CMHC is to reduce the overheating of the real estate market caused by low interest rates. The Canadian household debt is currently at its highest level, which is 168% of available income. This means that many buyers are unable to absorb a rate increase, however small it might be.

In 2012, CORPIQ interviewed its members regarding the profitability of their property, should a similar increase of 2% take place. Half of the respondents (51%) stated that such an increase would affect them moderately, while almost a third of them (33%) admitted that profitability of their buildings would be greatly affected.

Be that as it may, owning a property will certainly be more difficult for first time buyers who may have to rent for a few more years or revise their purchasing criteria. Growth in property sales prices should also slow down due to this measure.