Newsletter October 2017

Newsletter October 2017 1024 329 Guardian Financing

Welcome to the Guardian Financing October 2017 monthly newsletter. This month’s issue is on whether the new laws and upcoming regulatory restrictions are good or bad.

Are New Mortgage Laws and Upcoming Regulatory Restrictions Good or Bad?

The new mortgage laws and the upcoming regulatory restrictions in the Canadian mortgage market have elicited various conflicting reactions amongst regulators, homeowners, aspiring homeowners and other stakeholders within the industry.

Depending on where you stand, the regulation may take on a different meaning for you based on whether or not you feel they are favourable. For instance, a look at new laws and regulatory restrictions may not mean a lot for the existing homeowners, whereas new owners may perceive them as an unnecessary obstacle, making their first homes out of reach.

Experts, on the other hand, are also not reading from the same script with regards to the upside and downside of the changes.

Regulators believe that they are necessary to cool off a market that has recently been rising at a breathtaking speed, while lenders and brokers opine that the changes are not necessary given that the market is already cooling off, and the best thing that regulators ought to have done should have been to encourage stability rather than volatility in the housing industry, and to allow the market to take its natural course.

Rise in interest rates higher than rise in household incomes

One of the reasons why many experts believe that the intended rules and regulations are not good for the industry and the economy in general, is that there is a very significant disparity between the hike in interest rates and household incomes. Interests rates are set to rise by as much as 8%, while the household incomes are still sitting somewhere around 2.5%. The rise in rates will thus be about 3 times higher than that of household income. This essentially implies that homeowners will increasingly struggle to meet their mortgage obligations with their limited incomes.

New buyers are unlucky

The adoption of new laws and regulations makes becoming a homeowner in Canada much more difficult for aspiring buyers, especially first-time buyers. To begin with, the incongruence of interest rates with household income implies that the cost of owning a home will be out of reach for most people who are applying for mortgages for the first time.

Secondly, the regulations stipulate that applicants for uninsured mortgages with a 20% down payment will have to qualify at 2% above the posted rate. This regulation is seen by experts to be retrogressive, primarily because it discourages home ownership. It is making it more difficult for even the most committed and responsible savers to get mortgages. Additionally, since a large number of Canadians look forward to owning homes, such a regulation will only make it difficult for them, and the result will be an overall decline in the number of homeowners over time.

It is also important to point out that the stress test being introduced by the regulation has the risk of forcing potential homeowners to seek shorter term loans to be qualified as borrowers, and this may as well make a majority of them seek funding from riskier lenders who are not under federal regulations, thus engaging in heftier financial risk.

Outlook for the economy and the industry

For policy makers, the agenda is to make homeownership available to as many Canadians as possible, while reducing volatility and risk – a view many believe is not in accord with proposed laws and restrictions.

Introduction of restrictions such as stress testing may not be in tandem with these expectations, because, in as much as it will maintain consistency in the uninsured market, it should not be forgotten that the number of insured mortgages are shrinking each day, and about $1.6 trillion of the total mortgage debt in Canada is backed by government insurance.

The immediate impact of the new laws and regulatory restrictions may not be apparent, and the result of recent and upcoming changes may only be perceptible after six months to a year, but similar changes in the past, have always resulted in a significant impact on the industry and the economy, just like the introduction of the foreign buyer’s tax in Ontario.

With the housing market on the road to potentially taking a downward direction as interest rates pickup, more stability is required, and not the uncertainty created as a result of new laws that are being imposed and enforced. Canadians believe the implementation of the new rules and restrictions should be halted since they may crush the dream of homeownership for millions of Canadians.

That said, arguably, if we take a closer look at the Montreal real-estate market, it is undervalued compared to cities such as Toronto and Vancouver, which are on the top-ten list of cities at risk to bubble, albeit, somewhat in proportion to household income by region. Many are still bullish about Montreal’s real-estate market and see opportunities for growth throughout 2018.

What new laws mean for mortgage brokers

Unfortunately, you may receive inquiries from clients who are unable to handle their mortgages or require cash to handle emergencies, and require a short-term loan or private mortgage. Keep Guardian Financing’s information on-hand so we can help your clients throughout difficult times. We are also available in case you have any questions about certain files or for general information and can walk you through what you need for a second mortgage.

Guardian Financing is a direct mortgage private mortgage lender. We serve the greater Montreal Area providing short term residential mortgage loans, typically ranging from $50,000 to $750,000. Contact us today to discuss your file at 514-700-3121 or by email at files@guardianfinancing.ca.