Industry veteran warns consumers to brace for the impact of the stricter “stress test”
If 2016 was the year that made it harder for hopeful home owners who were looking to secure mortgages for their purchases, an industry veteran warned that things are about to get even more difficult for first-time buyers this year.
In a recent contribution for The Globe and Mail, RateSpy.com founder and intelliMortgage planner Robert McLister noted that the recent changes to the federal rules governing mortgages might discourage a significant number of would-be buyers.
In particular, the requirement to test the capability of insured borrowers to service payments at the posted 5-year fixed rate of 4.64 per cent will cause around one-fifth of new buyers to abort their home purchase plans in their desired cities.
A leading driver for this would be low-ratio borrowers (i.e., those with at least 20 per cent equity) having to pay higher interest in 2017.
“The reason: less rate competition. Bank competitors, who must insure all their mortgages, have been castrated by government rules that ban insurance on refinances, amortizations over 25 years, single-family rental financing and higher-value properties,” McLister explained.
“Worse yet, effective Jan. 1, 2017, Ottawa’s mortgage police will jack up insurers’ capital requirements. That’ll make low-ratio mortgages significantly more expensive for most bank challengers, pushing their rates higher.”
High-ratio borrowers won’t get out of the year unscathed, too.
“Lenders who securitize their mortgages (resell them to investors) often have the lowest mortgage rates. But going forward, Ottawa’s rule changes will make securitization prohibitively expensive in many cases. Some non-bank lenders could lose up to one-half of their business as a result.”
“To mitigate lost revenue, lenders will boost discounts on mortgages that the government still happily insures – those with less than 20-per-cent equity. That means mortgages with the highest loss potential will receive even lower rates in 2017.”
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In a recent contribution for The Globe and Mail, RateSpy.com founder and intelliMortgage planner Robert McLister noted that the recent changes to the federal rules governing mortgages might discourage a significant number of would-be buyers.
In particular, the requirement to test the capability of insured borrowers to service payments at the posted 5-year fixed rate of 4.64 per cent will cause around one-fifth of new buyers to abort their home purchase plans in their desired cities.
A leading driver for this would be low-ratio borrowers (i.e., those with at least 20 per cent equity) having to pay higher interest in 2017.
“The reason: less rate competition. Bank competitors, who must insure all their mortgages, have been castrated by government rules that ban insurance on refinances, amortizations over 25 years, single-family rental financing and higher-value properties,” McLister explained.
“Worse yet, effective Jan. 1, 2017, Ottawa’s mortgage police will jack up insurers’ capital requirements. That’ll make low-ratio mortgages significantly more expensive for most bank challengers, pushing their rates higher.”
High-ratio borrowers won’t get out of the year unscathed, too.
“Lenders who securitize their mortgages (resell them to investors) often have the lowest mortgage rates. But going forward, Ottawa’s rule changes will make securitization prohibitively expensive in many cases. Some non-bank lenders could lose up to one-half of their business as a result.”
“To mitigate lost revenue, lenders will boost discounts on mortgages that the government still happily insures – those with less than 20-per-cent equity. That means mortgages with the highest loss potential will receive even lower rates in 2017.”
Related stories:
Commentary: Open information will ultimately benefit the real estate market
Brokers debate the influence of tech on the mortgage industry
