Experts say Ottawa’s regulations will not have a major dampening effect on market sales
Ottawa’s tougher mortgage rules have sparked a rush by home buyers to get in before the new regulations take effect Monday, but may not dampen the real estate market to the extent observers believed.
“When the new mortgage insurance rules were announced, there was widespread expectations that this could help to cool the market,” said Toronto-Dominion Bank economist Craig Alexander. “But the true impact should prove limited.”
The rule that was expected to have the most widespread effect says all borrowers must meet the qualification standards for a five-year fixed-rate mortgage, even if they choose a variable-rate mortgage or one with a shorter term.
That means that, as of Monday, lenders must test customers who seek, for instance, a three-year variable-rate mortgage or a three-year fixed-rate mortgage, and ensure that they could still afford their monthly payments if they had to pay the higher rate that applies to a five-year fixed-rate mortgage.
But the rule doesn’t apply to customers who want a five-year fixed-rate mortgage. As a result, those customers face a less stringent test, since they need only prove that they can afford the rate they are actually signing up for.
Most of those customers are able to negotiate a significant discount off of the bank’s posted five-year rate. Indeed, they are generally paying a rate that’s closer to the rate on three-year variable-rate mortgages, and that’s the one they’ll be tested at.
“So most buyers could still qualify for the same size mortgage as under the old rules, so long as they take a five-year fixed mortgage product,” Mr. Alexander said.
Because many buyers didn’t know how the rules would be applied, some jumped into the market before the change, he added. “Despite the limited impact on qualifying, the new rules likely did encourage some additional sales earlier, which will contribute to a cooling later on.” [full story-->]
Source: Globe and Mail
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