• OUCH! 3 Harmful Government Mortgage Proposals

    The Government has made 3 mortgage proposals that if approved will greatly harm the Canadian real estate market.

    It is not often that mortgage news could affect our housing industry, but OSFI is proposing changes to the current mortgage market. Who is OSFI? And why does it matter?

    OSFI stands for the Office of the Superintendent of Financial Institutions. They are the final say as to how banks and lending institutions lend.

    In general, OSFI wants to make it more difficult for potential borrowers who are in the lowest income range for borrowing. In my history in the mortgage industry, it is this group (1st time home buyers) who have jump started the real estate market.

    Again, these are only proposals and have not been approved yet, but we will examine each new mortgage proposal here.

    Proposal 1: Changes and limits to the mortgage amount that can be borrowed and the total debt capacity one can carry.

    Banks or financial institutions would be limited to the amount borrowers can borrow up to a limit. Example: only 40% of loans in a bank can be approved with income greater than four times your annual salary.

    Proposal 2: New debt coverage for housing approval.

    Currently in Canada, your mortgage payment, property, taxes, and heating costs cannot exceed 39% of your total gross income. Although they have not stipulated what this new number may be, I would speculate it drops to 35% .

    Proposal 3: May implement a new debt calculation.

    In case of the unforeseen, what is unforeseen? Job loss, a separation with a spouse, having triplets, your car breaking down. It would act like a stress test for outside debts.

    What does this all mean for local housing?

    If these proposals are approved, the downward pressure of prices will only continue to go south. In review, since the Bank of Canada has raised the rates by 4% [prime was 2.45%, now, 6.45%] , the average home price in the Hamilton area in the GTA has come down. Inflation of food and energy has put the economy at the brink of a Canadian recession. As a mortgage planner and working with the average homeowner, people are stretched financially. I will give tremendous credit to OFSI for creating the original stress test in 2018. It has kept our banking system safe.

    Given mortgage rates are higher today, and given the current stress test, these three new proposals will make it much more difficult for Canadians to be approved for a mortgage, and it will reduce greatly, the amount who could qualify. If all approved, it is simple to predict the housing market will suffer greatly.

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