One-Third Of Consumers At Risk Due To New Mortgage Rules
Fully one-third of consumers would encounter difficulties in meeting the new debt service ratios as outlined by the tightened mortgage measures introduced by Finance Minister Bill Morneau earlier this week, Genworth MI Canada Inc. warned in a statement.
The leading insurer said that the regulatory changes from Ottawa would require all insured borrowers to qualify for loans using the posted rate of 4.64 per cent for five-year mortgages. This might drive off a significant proportion of the consumer base from the market and force them to just go for lower priced homes, the Financial Post reported.
With the new rules, even consumers who currently hold mortgages would not be able to search for new lenders easily, Genworth added.
Ratespy.com founder Rob McLister agreed with the projections.
“The big question is what happens with renewals,” Rob McLister said. “We’re not sure if you have an existing loan whether you can port that to a new lender and not have to qualify at the new rate or does everybody who changes lenders have to qualify for the new rate.”
Right after Morneau’s October 3 announcement, Genworth MI Canada Inc. stocks sharply declined by 10 per cent to $30.64.
The new measures include the closing of tax loopholes for capital gains exemptions on principal residence sales; increasing mortgage insurance eligibility requirements (even for borrowers who have large down payments); and the consultation of stakeholders to ensure the proper distribution of risk (including risk sharing among lenders).
Among the most notable changes to the current mortgage environment is the locking of the maximum amortization to 25 years. The maximum purchase price has also been locked to below $1 million, with a total debt service ratio of 44 per cent by the time of the loan’s approval.
The full scope of the changes can be viewed here
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Until next time,
Your mortgage expert Evgeny Kamenskiy