• What the Post-Pandemic Mortgage World May Look Like

    May 7, 2020
  • What the Post-Pandemic Mortgage World May Look Like

    By: Robert Floris, Lead Mortgage Broker with 30 years of mortgage experience

    Today is today, tomorrow…?

    Could we be going into a recession or will business not skip a beat after the COVID-19 crisis?

    The government will be doing things one way, the banks and lenders another, but how does it affect the most important person: the consumer? Let’s explore.

    The idea that the world will be changed after the pandemic ends is not a new one. Today, we will dive in and prognosticate where we think the Canadian mortgage market will be in the post-pandemic world.

    Will Canada be in a recession, the safest answer is yes. Locally, Mohawk College will be slashing its budget which always includes losses. Manufacturing, retail stores, restaurants, hotels, airlines, and even housing will see slowdowns as compared to the pre-pandemic era. With a recession, all parties will have their own agenda. Thus, the government, bankers and mortgagors will have their own ideas as to the future.

    How the Government Will Think

    Needless to say, the Federal Government in an economic slowdown will want to get the economy going. In the mortgage market, they will try to ease more lending guidelines to get the economy going. Here are some thoughts on how they may proceed.

    1. Higher Amortizations – Lift the amortization period to between 30 and 40 years for more affordability
    2. Lower Stress Tests – Currently set up to discourage speculation, lower the stress test from 5.05% to maybe even eliminating it
    3. Looser Government Regulations – Approval rules for clients and banking guidelines will be amended for easier approvals
    4. Better mortgage programs for the self-employed. As Canadians lose their job, many will enter the self-employed where the government previously has tightened the mortgage regulations

    How the Banks Will Think

    In the eyes of the banks and mortgage lenders, they will be nervous. Why? During recessions, they increase their loan provisions anticipating large home losses. When Canadians are laid off and cash flow is tight, they make difficult choices. Arrears will go up as homeowners walk away from their mortgages. This occurs in financial institutions across our country and their thought process is similar to ours.

    1. Tighter Approval Guidelines – It does not matter what the government wants. Public shareholders will demand accountability
    2. Lower loans amount to value of their property. For example, on a refinance, I can see the lenders going to 70% of 75% of the value. It will give them an extra cushion of safety instead of today’s 80% loan-to-value ratio.
    3. Appraisals – Do not get used to the appraisal process having no appraiser coming into the home. They will be entering in the duelling and the banks will be scrutinizing in the values much harsher. Lenders want an independent basis for their values, especially if values may be falling. A company such as Home Trust already speaks to appraisers about being conservative with value
    4. Priority will be with income – With layoffs and slowdowns, consistent income will be the prime criteria of all lenders. Scrutinizing your income is current and consistent and for those who make bonuses, will change the mortgage landscape.
    5. Tougher mortgage guidelines for rental properties – If a recession hits, the rental home is the first property to sell. Only the strongest will be approved for future rental homes

    How Mortgage Clients Will Think

    Clients, I believe, will have a different psychological view on housing for at least the first few years after the pandemic ends. Mortgagors will change in the following way:

    1. More Cautious – In general, consumers will be more cautious with their money and this will include buying homes. If you are not confident with your income or job, then you become scared and tend not to spend your income and you will sit on the sidelines.
    2. More Practicality – With the beginning of the stress test, Canadian mortgagors were beginning to buy smaller or cheaper homes, especially in the Hamilton area. If owning a home is similar to rent, then that represents practicality.
    3. Mortgagors will save more – This Coronavirus will teach us Canadians the valuable lesson of being ready in case of an emergency. Mortgagors will de-leverage their debt and thus delay their big purchase of a higher-end home.
    4. Renovations will increase as modernizing your home will be cheaper than buying a higher end home. Mortgagors will be happy to renovate their home for necessary repairs. Larger, massive renovations will be delayed.


    So that is how we suspect that the world will change after the pandemic. The first year or two will reflect the new world order. The government will be aggressive, the lenders will be painfully conservative, and the mortgage consumer will be prudent. This is just a natural change and we will all pull through this until we slowly rise and change the paradigm.

    Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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