We see the news, we turn the page and read the next article, and nothing is thought of these concerns until renewal time….cue the scary music. The sad reality of our current financial environment is that few will escape the impact of the changes in effect and the changes to come. So if you didn’t read closely the first time, take note now….THIS APPLIES TO YOU! OSFI Superintendent Peter Routledge states that the changes OSFI seeks to incorporate into home financing policy could very well mean:
1. Fewer borrowers will qualify for a mortgage with a federally regulated lender, like a bank.
As proposed, banks would potentially have to reduce how many mortgages they grant to borrowers with high ratios of debt to income (those with mortgages over 450 per cent of their income, for example).
OSFI could also put a hard limit on traditional debt ratios, which banks use to underwrite borrowers. Today, banks make exceptions for creditworthy high-debt-to-income borrowers – so long as they have significant assets or other risk mitigants. That may end or be curtailed.
On top of that, OSFI may somehow raise the minimum interest rate borrowers must prove they can afford.
2. More borrowers will pay up for non-prime mortgages
When bank credit becomes more restrictive, borrowers increasingly search out less-regulated lenders where it’s easier to get approved. That flexibility comes with higher interest rates and fees, which raise default risk for these borrowers. OSFI suggests this is an immaterial risk for the banks it regulates – but if you’re the borrower assuming this risk, it’s material.
3. It could add slight downward pressure to home prices, other things being equal
Some will argue that OSFI’s timing could exacerbate the housing sell-off. After all, home prices in many regions have fallen off a cliff, affordability is stretched with lofty interest rates and we’re likely headed into recession. We also just got a foreign-buyers ban, there’s a new anti-flipping law, federal and provincial governments have enacted a slew of new real estate-related taxes, and in February Basel III, an international regulatory framework for banks, is going to further tighten mortgage capital requirements. It’s probably fortunate that the implementation date of these changes is several months out, at least six months is my guess.
My coles notes interpretation of this all is….. It may get harder to borrow money, but housing could be slightly more affordable (it’s hard to say this as an Albertan in BC!). It’s important now to plan ahead (much ahead). Seek out assistance from a reputable mortgage broker so you can look at all options available to you – you WILL want them!