WHAT WILL YOU BE ABLE TO AFFORD ON JANUARY 1, 2018?
On October 17th, the Office of the Superintendent of Financial Institutions (OSFI), Canadas banking regulator, announced that it will be establishing a new minimum qualifying rate, or stress test, for borrowers making a downpayment of MORE than 20% of the homes value. Since November 30, 2016, stress test requirements only applied to insured mortgages (those with down payments of less than 20%) and most variable mortgages and terms less than five years.
Here is a bit more insight into the changes that are happening as of January 1, 2018 for uninsured mortgages/customers with 20% or more downpayment:
1) As of January 1, 2018, the borrower will have to qualify at the GREATER of either two the contract rate plus+ 2% OR the Bank of Canada Benchmark Rate (currently 4.99%)
2) High ratio mortgages greater than 80% loan-to-value will still be qualified at the GREATER of the contract rate OR the Bank of Canada Benchmark Rate (the 2% is not added)
3) Firm Agreements of Purchase and Sale dated prior to January 1, 2018 will qualify under the current rules (regardless of the closing date)
4) Firm Agreements of Purchase and Sale dated after January 1, 2018 will require the borrower to qualify under the new rules. (Rule 1 or 2 above)
5) Refinances approved prior to January 1, 2018 must close within 120 days of application date to qualify under current rules.
6) Pre-approvals that have not been converted to live deals before January 1, 2018 will be subject to the new rules.
Here is an example of how this new rule will affect you:
Under the current rules, prior to January 1, 2018, you can qualify at your contract rate being offered by the lender (for this example I will use 3.39% as the contract rate) with 20% or more downpayment:
$700,000 - purchase price
$140,000 20% down payment
$560,000 mortgage 80% loan-to-value
3.39%, 5 year term, 25 year amortization
$110,000 annual income to qualify
GDS (gross debt service ratio) = 36.88%
For the same income and purchase price under the new rules as of January 1, 2018:
You now must qualify at the greater of the benchmark 4.99% or the contract rate +2%
If contract rate is 3.39% then (3.39% + 2% = 5.39%) so 5.39% is the rate they must qualify at because it is greater than the benchmark rate.
Example above redone using contract rate +2% = 5.39%:
$700,000 - purchase price
$250,000 down payment client requires more down to qualify for this purchase
$450,000 mortgage 64% loan-to-value the client now qualifies for $110,000 less
3.39%, 5 year term, 25 year amortization, qualified at 5.39%
$110,000 annual income to qualify
GDS (gross debt service ratio) = 36.39%
You would have originally qualified for a $560,000 mortgage under the current rules; under the new rules you will qualify for a $450,000 mortgage - that is $110,000 less. Based on the above scenarios, under the current rules you qualify at 80% loan-to-value; under the new rules you will qualify at 64% loan-to-value - that is a difference of 16%. You will qualify for 16% less than you can now under the current rules (the above calculations are for scenario and illustration purposes only).
Toronto index stopped trending down in January
In January the TeranetNational Bank National Composite House Price IndexTM rose 0.3% from the previous month, a tic higher than the historical average for January and a second consecutive monthly increase. However, only four of the 11 metropolitan markets surveyed showed gains the first time since January 2016 that a rise in the Composite Index has had so little breadth. It was due mainly to a second straight monthly jump of the index for the important Vancouver market (1.2% in January on the heels of 1.3% in December). The Toronto index rose 0.2%, the Victoria index 1.0% and the Montreal index edged up 0.1%. All the other component indexes were down on the month: Hamilton (0.2%), Ottawa-Gatineau ( 0.2%), Edmonton (0.3%), Calgary (0.3%), Halifax (-1.0%), Winnipeg (1.1%) and Quebec City (2.0%). For Montreal, it was a 13th monthly increase, and for Hamilton it was a fifth decrease in a row. The rise of the Toronto index was the first in six months. The raw (unsmoothed) Toronto index  on which it is based was up for a third consecutive month. The firming of the smoothed index is due entirely to condo dwellings. The smoothed index for non-condo units fell in January for a sixth straight month, bringing its cumulative decline to 9.6%.
Click here for full release. https://housepriceindex.ca/2018/02/toronto-index-stopped-trending-down-in-january/
2018 CMHC Prospective Home Buyers Survey
In October 2017, CMHC surveyed 2,507 prospective home buyers on-line. Respondents were all prime household decision-makers who intend to purchase a new home within the next two years, including approximately 1,500 First-Time Buyers, 500 current owners, and 500 previous owners.
The survey results highlight that:
First-Time Buyers and Previous Owners share the same top motivator to purchase a home: they want to stop renting. Improved accessibility (physical obstacles and barriers) and investment opportunity were also noted as top motivators across all groups. Changes to mortgage regulations and concerns about possible future interest rate increases were not among the top motivators.
Over four-in-ten First-Time Buyers and Previous Owners say they would delay their home purchase if they were not able to find their ideal home, with a fairly similar proportion saying they would be willing to compromise on the size of the home and location.
The majority of future home buyers intend to obtain a mortgage to finance their home purchase, with First-Time Buyers showing higher incidence compared to Previous Owners and Current Owners.
Across all future home buyers groups, more than six-in-ten say they are likely to have a financial buffer in case their expenses change in the future. Furthermore, the majority of future home buyers, especially Current Owners, agree that they feel confident they have the necessary tools and information to manage their mortgage and debt load.
Among all groups, the two most common actions completed one to two years prior to the purchase of a home were saving for a down payment and determining what type of home to buy. On the other hand, in the last three months before purchasing, about two-in ten of prospective buyers pre-qualify for a mortgage.
About one-in-four prospective home buyers stated that they would be very likely to consider delaying their purchase in the event of an increase in interest rates.