New “bail-in” regime could spell the end of low rates, as consumers are expected to pay more to cover for the increased risk on the banks’ part, according to an analyst
Prior to the Liberal government’s release of the 2016 Budget last week, the real estate industry was on high alert for any indications of new moves to address housing affordability, which has been one of the current administration’s campaign promises last year—a vow that might not yet bear fruit in the near future, according to an observer.
In an analysis piece for MoneySense, senior editor and licensed realtor Romana King looked at the impact of the “bail-in” regime introduced by the Budget, which fully shifts the risk from the taxpayers to the banks.
Quoting the Budget, King noted that this arrangement is “in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too-big-to-fail’.”
King warned that this does not bode well for the current rates, since the added cost of the increased risk would be almost certainly passed on to the consumer.
“So, even though mortgage rates remain historically low, gone are the days of rock-bottom rates,” King wrote.
“Home buyers will probably also see stricter rules when it comes to mortgage applications, as banks try to contend with this shift in who is responsible for a potentially failed loan,” she explained.
“That will translate into tougher standards and could mean that buyers who are on fringes—those without good credit scores and credit utilization, those without full-time employment income, or those with higher debt ratios—may find it hard to qualify for a mortgage, never mind getting the best rates.”
King noted that the Budget was mum on increasing the capital gains inclusion rate. Speculators previously projected a significant increase from 50 per cent to 66.67 per cent, and even 75 per cent.
In an analysis piece for MoneySense, senior editor and licensed realtor Romana King looked at the impact of the “bail-in” regime introduced by the Budget, which fully shifts the risk from the taxpayers to the banks.
Quoting the Budget, King noted that this arrangement is “in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too-big-to-fail’.”
King warned that this does not bode well for the current rates, since the added cost of the increased risk would be almost certainly passed on to the consumer.
“So, even though mortgage rates remain historically low, gone are the days of rock-bottom rates,” King wrote.
“Home buyers will probably also see stricter rules when it comes to mortgage applications, as banks try to contend with this shift in who is responsible for a potentially failed loan,” she explained.
“That will translate into tougher standards and could mean that buyers who are on fringes—those without good credit scores and credit utilization, those without full-time employment income, or those with higher debt ratios—may find it hard to qualify for a mortgage, never mind getting the best rates.”
King noted that the Budget was mum on increasing the capital gains inclusion rate. Speculators previously projected a significant increase from 50 per cent to 66.67 per cent, and even 75 per cent.
