Consumers intending to purchase a home after December 31, 2017 may be affected by new mortgage guidelines which could lower the amount they can borrow for their home purchase. The new guidelines come into effect January 1, 2018.
The guidelines – or “stress test” – issued by the Office of the Superintendent of Financial Institutions (OSFI) on October 17, 2017, will mean that lower-risk home buyers (those with more than 20 per cent down on their new home) will join higher-risk borrowers in having to qualify for a mortgage at a higher interest rate than the one at which they will actually borrow.
Requiring borrowers to qualify for mortgages at two per cent higher than the rate at which they will actually borrow, or at the five-year Bank of Canada rate – whichever is higher – is intended to provide some confidence that borrowers will be able to handle higher payments when mortgages are renewed or refinanced after an interest rate increase.
However, as RAHB President Lou Piriano noted:
“There is a question about whether this measure is necessary, especially at a time when the market in the greater Hamilton-Burlington area has been cooling since the summer. What seems most certain is that after January 1, 2018, home buyers will be able to buy less house than they would have before the guidelines came into effect.”
The new guidelines will apply for all mortgages through federally-regulated financial institutions such as banks, trust companies and insurance companies.
These guidelines are expected to influence local real estate markets, which have already undergone a change from a prolonged seller’s market to a more balanced market. The guidelines may have other unintended consequences for the local real estate market, buyers and sellers.
“There are still a lot of unknowns about these new guidelines, especially information about how agreements of purchase and sale, signed before January 1, will be affected,” added Piriano. “There are also other issues to watch for, such as how provincially-regulated credit unions and private lenders will react, as well as how re-financing and mortgage renewals will be affected if there are any material changes in circumstances for the borrower or changes to mortgage terms.”
For more information, contact your REALTOR® to discuss the OSFI guidelines and how they may affect the real estate market in the Hamilton, Burlington and outlying areas, or buyers and sellers.