September 5, 2017

You may be affected by the introduction of new mortgage rules.

New mortgage qualifying rules will affect many Canadians, especially those with little or no money down and with relatively low incomes.  The rules will have the greatest impact on Realtors by cooling off the market as less people qualify for financing.  This will likely mean fewer houses flipping and prices stabilizing.  None of which is a bad thing.

The real target is for the new rules seems to be banks and bank lending as the effect will be a trickle down that spills over into other types of lending.  During the past decade more and more Canadians have been acquiring properties, with bigger and bigger mortgages.  All of which means that in face of lower interest rates the banks have been able to lend more and more money effectively increasing the assets held in form of receivables or saleable securities.

As mortgages have come up for renewal Canadians have become chronic consolidators, consolidating unsecured debt into their mortgages and extending the repayment terms out over longer time periods to facilitate cash flowing the monthly payments.  The trickle down has been to the largely unregulated credit card industry that has been insidiously increasing interest rates and extending minimum payment terms out over several lifetimes.

When we consider the impact of the new mortgage rules it seems certain they will slow the expansion of the market place as less people qualify, they will also result in a cooling off, as intended, of price hikes on residential real estate.  This may encourage banks to increase rates since they have fewer mortgages and there will be less opportunity to refinance unsecured debts.  Another trickle down impact may be the stiffening of lending rules for credit cards.  Perhaps you will have to pay off your balances within one lifetime instead of three using minimum monthly payments.

More regulation for lenders would not, in my view, be a bad thing at all and I do hope that I am correct in my assessment of the aftermath of the changes – time will tell.