CMHC’s New Mortgage Rules
The COVID-19 pandemic is affecting all sectors of Canada’s economy, including housing. Job losses, business closures and a drop in immigration are adversely impacting Canada’s housing markets, and CMHC foresees a 9% to 18% decrease in house prices over the next 12 months. In order to protect future home buyers and reduce risk, CMHC is changing its underwriting policies for insured mortgages.
Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
The measures include:
- Limiting Gross Debt Service (GDS) ratios to 35% (from 39%)
- Limiting Total Debt Service (TDS) ratios to 42% (from 44%)
- Raising the minimum credit score to 680 (from 600) for at least one borrower
- Banning non-traditional sources of down payment that “increase indebtedness”
What do the Changes Mean for Buyers?
CMHC’s changes will effectively reduce homebuyers’ purchasing power by up to 11%, according to RateSpy.com.
“Someone earning $60,000 with no other debt and 5% down could afford approximately 10.9% less home under CMHC’s new rules,” the site noted. “That’s like jacking up the minimum stress test rate from 4.94% (where it lies today) to 6.30%!”
Changing Policy
While many understand where the policy adjustments are coming from, others are adamant that now is the worst time to implement such changes.
These decisions are within CMHC’s authorities under the National Housing Act and are in anticipation of potential house price adjustment. CMHC will continue to monitor market conditions and work with our federal colleagues on potential macro-prudential policy options.
CMHC supports the housing market and financial system stability by providing support for Canadians in housing need, and by offering housing research and advice to all levels of Canadian government, consumers and the housing industry.
As you may recall from my last article, CMHC is for home buyers who cannot provide a 20% down-payment. Those home buyers are considered “high-ratio” and are required to insure their mortgages against default with CMHC (or if the mortgage lender allows, one of the other 2 private mortgage insurers who as of this writing, confirm that they have no plans at this time to change their underwriting policy).
Source CMHC & Canada Mortgage Trends
Candace Perko
Mortgage Broker
Countryside Financial
www.countrysidefinancial.ca
