Impact On ‘Luxury’ Market – “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.”

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

23 responses to “Impact On ‘Luxury’ Market – “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.”

  1. 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. “

  2. 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.”

  3. 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.

  4. Ralph Cramdown

    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.”

  5. 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.

      • Ralph Cramdown

        …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.

      • Yellow Helicopter

        Agreed with Ray!

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