Rule changes and falling rates are sparking hopes of a busier market ahead
After a protracted slowdown in Canada’s mortgage market since 2022, a spate of developments in recent weeks have sparked hopes that a resurgence is in the cards.
A trio of interest rate cuts by the Bank of Canada since June have seen variable rates fall at last, with fixed rates also on the way down as five-year Government of Canada bond yields dip.
Meanwhile, mortgage qualification rules are also easing. The federal government announced last week that it was hiking the cap on insured mortgages to $1.5 million and expanding access to 30-year amortizations; then on Wednesday, the Office of the Superintendent of Financial Institutions (OSFI), the national banking regulator, revealed that it was removing the requirement for insured mortgage borrowers to stress test when renewing with a different lender.
The government’s decision to tweak qualification guidelines has spurred a wave of calls in recent weeks, according to Toronto-based broker Leah Zlatkin (pictured top).
Has borrower sentiment toward the market changed?
Zlatkin, who serves as chief operating officer and broker at Mortgage Outlet and president of the Canadian Mortgage Brokers Association – Ontario (CMBA-ON), told Canadian Mortgage Professional that optimism appeared to be growing among the borrower community on the outlook for the months ahead.
That’s partly a result of the rule changes announced by the government on insured mortgages and amortizations. The second part: “A lot of people are starting to look at variable rates so we’re starting to get a lot of questioning around, ‘Well, does it make sense for me to lock into a fixed, or does it make sense for me to move to a variable at this point in time?’” Zlatkin said.
Ryan MacNeil of Keystone Capital noted that brokers engaging with private lenders and focusing on education are gaining a clear advantage, especially in a quieter market.
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“And that conversation is starting to become more and more front of mind for a lot of Canadians when you look at what the standard rates are right now.”
The debate among many clients at present, according to Zlatkin, is whether a three-year fixed or five-year variable is the better option – with the differential between the best of those options currently sitting around 0.9%.
That means that if the Bank of Canada decides to cut its rate at least four times in the next three years, the variable option may be the best choice. “Otherwise, you have to make up for the additional interest that you’re paying while you wait for them to catch up,” Zlatkin pointed out. “But it also offers a lot of flexibility for people who believe rates are going to come down further.”
Breaking a fixed-rate mortgage, which results in a penalty of the greater between three months’ interest or the interest rate differential (IRD), can be more punitive than breaking a variable rate – meaning borrowers have more to lose if they want to lock in a lower rate.
Will the new changes bring buyers back into the market?
On the changes to the insured mortgage cap, prospects are somewhat mixed for hopeful buyers. The move may open up affordability to some buyers – but many are likely to remain frozen out. “I wonder how many people are going to qualify for the mortgage amount that they need,” Zlatkin said.
Some people who were previously priced out of townhomes and condos around $1 million could be in a position to buy, although demand may also see prices jump. “The question is: Is this going to push homes that were at the $1 million mark up to $1.2 million, or is this going to allow for people to be able to get into the homes [around a million dollars]?” Zlatkin said.
“And that’s still a question in my mind, whether this is going to drive up prices sufficiently to keep people boxed out of the market or whether this is going to allow for more people to get into the market.”
Further clarity from large insurers, including Sagen and Canada Guaranty, on the new rule is reportedly on the way in the weeks ahead – an announcement Zlatkin said will provide a better idea of what impact the mortgage community should expect the changes to have.
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