Last week, the Office of the Superintendent of Financial Institutions (OSFI) proposed a new qualifying rate for uninsured mortgages to be the higher of the mortgage contract rate, plus 2% or 5.25% as a minimum floor which they will revisit and re-evaluate at least once a year to ensure it remains appropriate for the risks in the environment. The plan is to implement the changes on June 1, after consultations. It has not been passed yet.
This means that the qualifying rate for uninsured mortgages will increase from 4.79% to 5.25% but what does this mean for you? This means that there'll be a 5% reduction in borrowing power but this is only applicable for borrowers who plan to have 20% or more in down payment.
So what do we expect to see?
We're expecting to see stronger bids as we approach June 1, 2021 because people will want to get an accepted offer so that they can apply and qualify at the current stress test instead of the proposed one.
Afterwards, we'll see people, who are just on the border of being able to qualify for a certain type of property, consider downgrading.
We'll also see less expensive properties, like condos, becoming even hotter as there will be more demand since more people can qualify for those types of properties.
Borrowers will need good advice and may be confused with all the different changes. Credit unions and b-lenders will have an increase in business as they will be able to offer more options to qualify for the mortgage amounts required.
And prices? We think prices will still increase. The stress test was implemented a few years back but since then, prices have continued to increase and have almost doubled. It's not going to affect housing prices too much once everyone has adjusted to the new normal. One of the reasons why demand is so strong is because of low interest rates. As long as interest rates continue to stay at record lows, people will take advantage of the cheap money available to buy, refinance, and upgrade.
We don’t expect this being the last of changes though so don't expect it to end here! We'll keep you up to date on the latest news so make sure to keep your eyes peeled for the next big news.
If you have any questions or want to learn more about the proposed changes, feel free to contact us and ask! We're here to help.