By Lola Augustine Brown
The new rules on Canadian mortgages that went into effect October 17 are designed to help make sure that homebuyers are less likely to go bust if interest rates rise. These rules, coupled with measures restricting foreign ownership in Vancouver and Toronto, are also intended to cool down the hot markets in the Canadian real estate market.
The biggest change is the addition of the “mortgage stress test,” which will see borrowers lend only as much money as people could afford to pay back at rates higher than those they would qualify for now (so while someone could feasibly get a mortgage at 2.6%, he or she will be assessed at higher rates to make sure he or she would still be able to pay).
The change might not be a big deal for someone already in the housing market and interested in selling to move elsewhere, but it could be crippling for first-time homebuyers, who will be able to afford less house, if any at all.
Critics fear that the new rules could create problems for older Canadians who want to downsize and access the equity they’ve built up in their homes. If the market cools and it’s suddenly much harder for first-time buyers and lower income earners to get a mortgage, who’s going to be looking for a family home in an established neighborhood? Sellers may have to lower their asking prices to make their homes affordable to that sector of the market, or be prepared to wait a while before selling. That could throw a spanner in the works for Canadians on the verge of retiring.