The measures announced by Mr. Flaherty will also have an effect on the higher end of the market, because homes at $1-million or more will no longer be eligible for mortgage insurance, meaning the buyer must have a down-payment of at least 20 per cent.
“I think that the luxury home market will be significantly impacted by it,” said Calum Ross, a mortgage planner who works with many buyers in Toronto’s high-end market.
He thinks that’s a good thing. “It’s ridiculous that these people have ever been allowed to get high-ratio mortgage insurance,” he said. Last week, he secured a mortgage approval for more than $1.25-million for a couple that he worries can’t afford the home, a situation he sees often.
“I told them they were taking on too much risk,” he said.
- from ‘Tightened lending for mortgages will cool market – but by how much?’, Globe and Mail, 22 Jun 2012 [hat-tip fatjay]
Of course, in Vancouver, ‘luxury’ is your average SFH.
We anticipate the mortgage tightening rules will affect the market at all price levels.
- vreaa
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
Above is a link to FAQ about the new mortgage rules from the department of finance. Some of these rules should be causing a fair amount of people who have jumped onto the spec condo bandwagon recently:
“Q. I have a written mortgage pre-approval from a lender, dated before July 9, 2012 with a 30-year amortization. Will I still be eligible for a 30-year amortization if I don’t sign an agreement of purchase and sale until July 9, 2012 or later?
A. No, a mortgage pre-approval without an agreement of purchase and sale is not sufficient to qualify for a 30-year amortization. You may have a 30-year amortization only if your agreement of purchase and sale is dated before July 9, 2012 and you have made a mortgage insurance application before July 9, 2012. You may wish to discuss with your lender to revise your mortgage pre-approval using the new parameters announced today.
Q. If I bought a condo that is not expected to be built for another two years, will the new parameters apply?
A. If you bought a condo and have made a mortgage insurance application on or before June 21, then the new parameters would not apply.
If you buy a condo and make a mortgage insurance application after June 21, the new parameters will apply if the mortgage loan is not funded by December 31, 2012. “
I’m having some difficulties posting, so my apologies if this post comes up twice.
Here is a link to a FAQ document from the Department of Finance regarding the mortgage rule changes. These should be causing a fair amount of consternation among those who have been unlucky enough to have recently purchased a spec condo:
“Q. I have a written mortgage pre-approval from a lender, dated before July 9, 2012 with a 30-year amortization. Will I still be eligible for a 30-year amortization if I don’t sign an agreement of purchase and sale until July 9, 2012 or later?
A. No, a mortgage pre-approval without an agreement of purchase and sale is not sufficient to qualify for a 30-year amortization. You may have a 30-year amortization only if your agreement of purchase and sale is dated before July 9, 2012 and you have made a mortgage insurance application before July 9, 2012. You may wish to discuss with your lender to revise your mortgage pre-approval using the new parameters announced today.
Q. If I bought a condo that is not expected to be built for another two years, will the new parameters apply?
A. If you bought a condo and have made a mortgage insurance application on or before June 21, then the new parameters would not apply.
If you buy a condo and make a mortgage insurance application after June 21, the new parameters will apply if the mortgage loan is not funded by December 31, 2012.”
Consternation? If anything, those lucky few whose purchase plans were derailed by yesterday’s announcement just won the lottery. The consternation will belong to the ones who managed to squeak in before the July 9 deadline.
Absolutely right- that was my point! Those who do “squeak in” will face some mighty big challenges in terms of demand (and price) for those same properties when it some time to take possession.
Here is the DOF link that I had trouble posting earlier:
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
Yes, exaclty the point I was trying to make! Nasty surprises when it comes time to take possession.
Here’s the DOF link I tried to post earlier:
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
It looks like the condo market is going to take a serious hit……ouch!
Oops. Forgot the link:
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
Ooops. Here’s the link:
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
Link:
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
A colleague dropped by my office the other day to announce that he had recently bought a new home in Calgary with a $400k mortgage. (Better school catchment area) A recent arrival from India, he asked about selling his old place that has a $300k mortgage. He thought he should keep it and rent it for a net monthly loss of $200.
I asked how long it would take him to pay off $700k and he had to think about it for a while, but it worked out to about 30 years or more. He obviously had not considered this and seemed surprised at the result. I launched into a lesson about Calgary’s fortunes being tied to oil prices and told him about 1982, the ’90s, and 2009. He blanched and left my office immediately.
Oil is $78 and falling, look out below.
You should also remind him of the stresses of renting out a house a province away. One bad tenant, or one major repair, and his life will get very interesting.
I don’t think oil can remain below $70 long term, without a widespread shift to alternative fuels.
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
Oops. Link for above post:
http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
Anybody else find it ironic that this guy calls himself a mortgage “planner,” yet spends his days pushing paper for people “that he worries can’t afford the home, a situation he sees often.”
“Ironic” is one word. “Unethical” and “immoral” are some others.
So based on the rule wording, you can get a mortgage on a home sold for $999,999 for $50k DP and a $950k mortgage. Whereas a home sold for $1 more you can only get an $800k mortgage for $200k DP?
Yes, something like that.
You can see how suddenly there is immense pressure on homes in the $1M to (say) $1.2M range to drop in price, and how, simultaneously, there will appear some price support in the just-sub-$1M area.
…or to have one agreement of purchase and sale to show the bank and CMHC and an extra bag of cash for the vendor, or even a VTB second. Strange things are done ‘neath the midnight sun by the men who need to say “sold.”
…Strange things are done ‘neath the midnight sun by the men who need to say, “Baaaaah….Baaaaaaah”… – Mr. CramDown
[NoteToEd: for those who enjoy WordPlay, it is worth noting that Golden BC's most popular lodgings for Itinerant MenInChaps is the infamous PackerInn]
Seems poorly thought out for the exact situation you mention. On the plus side, that one rule will likely drop prices here by $100K+ across the board. $1.1 need to drop to $999K, 950K will need to drop to 850K to get any interest and so on and so on. Those drops will make homes in the $1.2M to $1.5M range seem way too expensive when you can buy a neighbouring house for $999K and put a hundred thousand into it.
Personally I think the $1M valuation CMHC cap rule will have more impact in prices here in Vancouver than all of the other changes combined
It’ll be great to get you to do a count in your database for homes at $1 million to (say) $1.1 million range for each of the weeks after June 21st, to see how they are all suddenly repriced to $999k. It would also be very interesting to see how many homes are indeed priced in the $990k to $999k range over the next little while. I’ll bet it skyrockets when the average home price in Vancouver is something like $1,020,000 right now.
Agreed with Ray!