The Stress Test – A Possible Outcome
By Dustan Woodhouse
By now the Media, along with multiple mortgage brokers social media feeds, have likely let you know that more changes to your ability to get a mortgage are arriving soon. Should you care? The five ’W’s follow to help answer the above questions and more…
Who is affected?
Nobody simply renewing an existing mortgage. No changes for you.
Nobody buying with less than a 20% down payment. No changes for you.
Group 1 – Current homeowners with more than 20% equity who want to access that equity.
Mind you were are still talking specifically about people wanting to borrow more than 80% of what they currently qualify for. This is less than 10% of my own clients. Factor in that only ~50% of Vancouverites have a mortgage at all, and we are talking about 10% of the other 50%.
Perhaps less than 5% of current homeowners are affected. And even then, often there will still be a way; co-signors, alternative lenders, etc.
Group 2 – Buyers with 20%+ down payment who specifically planned on borrowing more than 80% of what they currently qualify for.
What does this mean for the market? Is meltdown imminent? Um. No.
Where? These changes are unlikely to have a significant impact on the Vancouver or Toronto markets due primarily to higher than average household incomes and higher than average net worth of our parents if they live locally.
In small town Canada where average household incomes and average net worth numbers are lower, the impact of these changes could in fact be much more pronounced. Rather than a slight dip in specific price brackets and specific property types as might be seen in the GVA (Greater Vancouver Area), one might expect as much as a 10% drop in values in smaller communities.
When? Jan 1, 2018***
Who picks these dates? People who believe that mortgage brokers, lenders, and underwriters don’t deserve and sort of holiday break at all. The changes themselves are poorly thought out as it is. But the date of implementation appears to have been generated by the coldest, loneliest, most robotic person in government today.
Why not Dec 15? Or why not Feb 1? Seriously? Jan 1?
***If you believe these changes may affect you take action well before Dec 1, 2017.
Lenders will be implementing the new rules early, they always do.
Why did the Government make more changes?
Because they can.
For one reason only. OSFI aka the ‘Office of the Superintendent of Financial Institutions’ has a singular mandate.
It’s not to calm prices, it’s not to protect consumers from themselves.
OSFI’s mandate is purely ‘to protect the stability of the CDN banking system’.
Period. The end.
It is not about you, me, consumer debt, bidding wars, subject free offers, runaway property prices, etc. No, it’s all about protecting the banks.
We are at a point where for ten years running the government has made significant changes to the mortgage lending market every single year.
What’s happened to prices pretty much every year for ten years running?
What’s happened to market activity pretty much every year for ten years running?
At this point it feels a bit like we have an impatient child smashing their toy against the ground because it’s not working to their liking. It was/is actually working fine, but after the tenth hit maybe it may well start to falter, perhaps government should have paused after the ninth hit and seen if things were falling into place (they are), but no – here we go again.
I’d like to say hopefully they are not winding up for yet another hit. However, sadly, all indications from inside the machine indicate that they are in fact winding up for yet another hit. More on that one if and when it happens.
In the meantime know that the overall impact on the greater Vancouver market will likely be very minor. If you are a buyer in the 500K – 1M$ zone watch for some opportunities as that may be where things soften slightly. Otherwise, business as usual.”
Dustan Woodhouse is an Ace Mortgage Broker – you can reach him at www.dustanwoodhouse.ca