Welcome to the November issue of my monthly newsletter !
This month’s edition discusses what the Bank of Canada is (not) up to, and more importantly what the Federal Government is implementing Jan 1. Also look for a short note regarding maternity or paternity leave while shopping for a new home or renewing your mortgage on an existing home.
Please let me know if you have any questions or feedback regarding anything outlined below.
Thanks again for your continued support and referrals!
Bank of Canada – Back on Hold
On Oct. 25, the Bank of Canada made no change to the overnight lending rate.
This lack of movement was widely expected, then again the Bank of Canada surprised 27 of 33 economists polled with the previous 0.25% rate hike on Sept 6, following a previous 0.25% hike July 12. At this point cooler heads are prevailing.
These two recent increases should be viewed with the consideration that the last time the Prime rate reached a level this ‘high’ was September 2010, where it then sat stagnant for more than four years. Until a shock to the system triggered two 0.25% drops in early 2015. A response to the sudden drop in oil prices.
Shocks to the system often cause rates to drop, the unexpected.
What will cause rates to continue to rise in the future? Economic good news, which is something that tends to build in a predictable and slower fashion. Interest rates are unlikely to rise significantly anytime soon; they are also likely to increase gently and slowly when they do so. Just as they have thus far.
The net effect of the two increases in 2017 is a return to a previous high set in 2010; a ‘high’ that remains a remarkable historical low.
The next Bank of Canada meeting is set for Dec. 6 and at this point, few experts are anticipating a rate increase.
Wondering about locking in that variable? Act with caution, act with knowledge, and gather that knowledge from multiple sources, including a conversation with me.
When – Jan 1st, 2018 – Lenders may adopt new policies sooner due to the date selected
Who is affected by these upcoming changes?
#1 Nobody renewing an existing mortgage.
#2 Nobody purchasing a home with LESS than a 20% down payment.
OK, so who then?
People with more than 20% to put down on a new purchase, or with more than 20% equity in their home.
Yep, the group that represents the absolute lowest risk to market stability. You may have amazing credit, a great income, and 20% or more down…but you will have your mortgage maximum cut by a solid 20% over where it has stood for the past twenty years or so.
Is this a big deal? Yes and No.
No, because the majority of Canadians rarely borrow 100% of their maximum. The group hitting their maximum tend to be the same group that has LESS than 20% to put down and that group was addressed by the government last October.
In other words the impact of these rules will be small overall…mostly.
Yes it is a big deal though, specifically for the small number that will be directly impacted, these changes will feel like the cold and devastating slap in the face they are.
This is being done in the face of a track record of statistics decades long that shows homeowners with greater than 20% equity represent just about as close to zero foreclosures as can be imagined.
In other words, the group impacted is not one that needed ‘stabilizing’ or restrictions. These are people already self-regulating to a great extent. After all, that is how they got the 20% equity and the excellent credit and income required for that maximum amount in the first place.
What does this mean for the market? Is a meltdown imminent?
Again, this is a small number of people affected. Albeit a small group impacted in a massive way if you were to ask them.
In particular these changes are unlikely to have any impact of note on the already flattening and softening Vancouver or Toronto markets. This is due to higher than average homeowner household incomes in these cities.
However small town Canada, where the impact of last year’s ‘stress test’ for buyers with less than 20% down has had a big negative impact. could well feel yet another wave of negative price pressure. Something that will displease many existing homeowners, and as the price softening is unlikely to be significant enough to please prospective buyers, basically nobody will be pleased.
To be clear, these changes were made by the Office of the Superintendent of Financial Institutions (OSFI) and OSFI’s mandate is specifically ‘to protect the stability of the CDN banking system’.
These changes are not about creating affordable housing, addressing consumer debt, stopping bidding wars, slowing condition free offers, or runaway property prices, etc. If you are concerned about these changes affecting your own financing abilities please contact us immediately, we can still take action well before the Jan. 1, 2018 deadline.
|Did you know…|
|Often the impending arrival of a new addition triggers thoughts of other changes in our lives. We often decide that a larger vehicle and/or larger living quarters are in order. And we are perhaps unaware of the impact increased payments can have on mortgage qualification.
There are a few key points around mortgages and new debt additions.
1. The monthly payment on a leased or financed car can have a significant negative effect on mortgage qualification. Housing first, vehicles second.
2. Being on maternity or paternity leave while shopping for a home is not a showstopper. The key is a job letter that clearly defines a return to work date, i.e., you have a full-time income position to return to.
3. Being on maternity or paternity leave, or even having a new car payment in your life will not affect your ability to renew your mortgage with your current lender, although it can make moving to a new lender more difficult.
Before adding a car payment, before listing your current residence for sale, give us a call.
As always, I’m here to help!