For 2018 we are in a whole new real estate market reality. Stricter mortgage rules are limiting affordability for buyers and contributing to slower housing market conditions that began in Spring 2017 following the record-breaking activity experienced up until that point for the last few years. However, similarly to early 2017, the condo market remains strong as more buyers consider condos and condo townhomes as more affordable alternatives to freehold homes.
With the latest new rule, all new mortgage applicants must undergo the stress test that was previously only required for buyers with a down payment of less than 20% and needing lender favourable mortgage insurance. Now, even buyers with a down payment of more than 20 per cent must also prove they can qualify at either their contract rate plus two per cent, or at the Bank of Canada’s benchmark rate – whichever is higher.
Getting a lender mortgage pre-approval should always be the first step for any buyer planning on taking a mortgage for a property purchase. It’s now more important than ever as it will give buyers a better understanding of what their financial landscape and overall living expenses will look like after they purchase. With the threat of possibly rising interest rates, the decision of whether to lock in on a fixed interest rate or to go with a variable rate will still of course, depend on their unique situation, and should always be discussed with a mortgage professional. Buyers who are also selling a home may have implications regarding their existing mortgage as they may be surprised to learn that they, too will be subject to the new stress test parameters. Furthermore, the rules also disallow the combining of multiple mortgage products which could be problematic to buyers with qualifying based on loan to value stipulations.
Whether previously a buyer was considering alternatives such as co-lending options or bundling mortgages, whether they were being helped with their purchase by family, and even if they are building a larger down payment, these are not the easy alternatives they once were. Moving forward, buyers will be required to show proof that their credit information and income is sufficient to pull them through in the event that interest rates increase, all of which could still have them qualifying for a smaller mortgage than possibly anticipated, under the new regulations.
So, what does this all really mean for buyers? Basically, it means some buyers may get pushed out of their preferred purchase category. They may need to reduce the number of bedrooms, overall size of living space, or in many cases, they may be pushed from a detached home into a semi-detached or attached home. Depending on the degree of changes affecting each unique buyer, it is likely that we’ll see more purchasing into the condominium apartment or condo townhome market. This could be good news for anyone looking to sell their condo.
Understanding the market and working with a professional realtor you trust has always been important, and now be even more important than ever. If you would like to discuss this further, I’d be happy to hear from you.