Introduction Of New Mortgage Rules Brings Mortgage Loans Level Back To Normal

With the introduction of new mortgage rules in 2016, the mortgage level is back to normal as the insured mortgage market experienced a decline of 47 percent.

In the latest report of Canada Mortgage and Housing Corp. (CMHC), it was mentioned that only 67,915 units were provided for three months as compared to the 127,991 units during the same period in 2016. Steve Mennil, the senior vice president of insurance in the CMHC, confirmed that the decreasing trend was consistent throughout the year, because of the new mortgage rules. He further said that these new levels will be the ‘new normal’. However, before diving deep into it, let’s look at what new mortgage rules are.

What are the New Mortgage Rules?

The new rules state that if a home buyer has less than 20 percent of the down payment, he or she is required to pass the stress test. This test will ensure that they are in a position to repay the debt if the interest rate increase or should they face financial difficulty.

Previously, regular contractual mortgage rates were applicable to refinance the loan. But if you are planning to refinance the mortgage now, the new stress-state rates will be applied to you that are higher than the regular rates.

The introduction of these rules has affected the purchasing power of home buyers. But it does not mean that they cannot buy a home. To get a better deal, they must consult with experienced brokers in the market, as they have the market knowledge and experience to guide them in the right direction.

Impact of New Rules

The housing agency said that the effect of these rules can be seen on transactional homeowners and portfolio volume. The former experienced a decline of 30 percent due to lower purchase and financing volumes, whereas, the latter reduced by 90 percent because of the market adjustment due to the new pricing.

Even if these sectors of the market suffered decline, it was eventually nullified by the increase in multi-unit residential volumes. The reason behind the upward trend was increasing volume of refinancing transactions. The lower levels of mortgage loan also left an impact on staffing requirements in the agency’s underwriting group, but it was offset by the increasing number of multi-unit residential.

Housing – A Fundamental Right?

The new normal is definitely a challenge for homebuyers in Canada. Despite bringing the mortgage level back to normal, it has made it difficult for people to secure housing options. However, these issues were addressed by the Prime Minister Justin Trudeau as he shared the $40 billion plan back in November last year. It was promised that a law will be introduced for making housing a fundamental right of every Canadian. In fact, the portable housing option was also proposed for low-income individuals.

It was mentioned in the quarterly report of CMHC that they have seen improvements in the mortgage loan quality after the implementation of new rules. The arrear rate in 2017 decreased to 0.30 percent in comparison to the 2016 rate that was 0.32%.

The proposed investment figures in the new plan are based on the federal funding of $5 billion that was included in the budget of 2016. A certain percentage of it was also reflected in the CMHC’s expenses associated with the housing programs in 2017. The proposed budget plan of 2017 also includes funding that will be allocated to social housing and low-cost loans for affordable housing.

Therefore, to recuperate from the effect of new rules, the government has proposed quite reasonable options to make housing affordable to everyone.