There are new guidelines for residential real estate sales starting January 1, 2018.
Guideline B-20 from the Office of the Superintendent of Financial Institutions (OSFI) was revised recently enforcing stricter rules for people wanting to buy a house with an uninsured mortgage.
Previously homeowners who had a 20% down payment were thought to be:
- In a safe financial position — mortgages are accepted fairly conservatively by banks.
- Financed without direct government backing (like Genworth or CMHC).
Office of the Superintendent of Financial Institutions is an independent agency of the Government of Canada reporting to the Minister of Finance created “to contribute to public confidence in the Canadian financial system,” and they aren’t happy with the current standards for getting an uninsured mortgage.
The revised Guideline B-20 basically says that houses with uninsured mortgages — a.k.a if you save 20% down on your house so you don’t have to pay CMHC fees — still have to go through CMHC or Genworth starting January 1, 2018.
This is also being called the uninsured stress test. This link will take you to a page that gives more details like:
“Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.”
But for the rest of us who kind of understand what that says, but not really, it means that more people will be declined by banks, and even borrowers who aren’t a risk to the banks will be approved for LESS and/or see their mortgage rates rise.
So, homebuyers who aren’t rich could be shut out of the housing market or forced to accept crappy home loans.
This is a HUGE change, and a big reason to buy before January 1.
Keep in mind that these laws are made to protect lenders from a spike in delinquencies if interest rates rise. It just sucks big time for an average buyer.
Here is a great example of bnn.ca:
A family with an annual income of $100,000 with a 20 percent down payment can currently afford a home worth $792,813 (based on a 2.64 percent mortgage rate and accounting for property tax and utility costs). If stress-tested to qualify at 4.64 percent, that same family would afford $146,579 less home.
While many professionals in the financial industry agree that this is the move that we need to make to avoid any mortgage crisis, it prevents many people from being able to buy and is likely to dampen the housing market in the new year.
If you’re looking to invest in a home in the near future, give me a call, or shoot me an email and let’s get this done before January 1st!