As we approach the end of the year, there seems to be a near feeding frenzy with respect to mortgages. The new “stress tests” for people with a minimum 20% downpayment has everyone spooked. “I need to get pre-approved now!” “There is not much time, what if I can’t get it done?!”
By the time you read this, the time where you could have avoided the new rules has passed. We are stuck with them now. And frankly, I am not sure they are going to make much of a difference.
a) For those of you who have good credit and verifiable income – what changes? You go to an “A” lender, get your crazy cheap mortgage, whistle a happy tune.
b) For those of you with some wrinkles on your credit and income – you now have to qualify at a higher rate. Either the Bank of Canada rate (currently 4.99), or the actual mortgage rate + 2%. Whichever is higher.
This will affect some people, without a doubt. But not all that many. And remember – there are still ways around some of this for a lender, by applying slightly-looser rules for accepting income than they did before.
c) But I think this misses the mark of where the people affected are going to end up borrowing from. I would be surprised if nearly all of these people with a nice big downpayment could not (easily) borrow using private funds. Private lenders do not care about these “invented” stress test criteria. They are not regulated, lend based on risk, and (frankly) are happy we have the new stress tests … as it means more business for them!
With poor credit – private funds still lend. With low income – private funds still lend. Property will need to be in a set geographic area, and you have to have a solid downpayment of your own money to ask as “skin in the game” equity, and can cover the closing costs.
As of the date of this writing, I now see private lenders emailing me with rates as low as 5.99% in first position. Is this higher than a bank? Yes, but still low by historical standards. In my own case, I had a VARIABLE mortgage from a bank on my current house at 5.47%! On my first home, I had a mortgage of 7.25% from a bank. At the time (10 years ago, and 20 years ago), these were considered very good rates! And my credit is flawless, and my income completely verifiable.
In this blog, I have been very critical of government policies that act to lower housing demand – rather than having government policies that increase housing supply. And this is yet another of those. These new stress tests do nothing more than make it harder for people to buy homes.
And yet where are the government policies that encourage builders to build? Can we speed the process, so that builders can bring raw land into housing more quickly? Can we loosen density restrictions so builders can build more houses than condos? Can we lessen the amount of charges developers incur on new housing, to reduce their costs and thereby encourage lower new house prices? Apparently these thoughts are too radical.
So we have another government policy, mostly affecting those who are not already owing a home, making it harder for them to own a home, under the guise of making housing more “affordable”. My expectation is that it will have a temporary impact only, and even then small. And then the hundreds of thousands of new people coming to the GTA every year will figure out a way to own a house anyway.
Please contact me if you would like to discuss a private mortgage.