New Mortgage Rules

October 31, 2017

New mortgage qualifying rules will come into effect in January 2018. Many consumers are in a rush to obtain mortgages before the changes, but is that a good idea?

Let’s think about changes in mortgages during the last fifty years. Fifty years ago, about half as many Canadians had their name on title as property owners as do today. But fifty years ago, those who did have their name on title had smaller mortgages than the average home owner does in 2017.

Compared with other countries, perhaps surprisingly, including China, Russia and Cuba Canadians generally lag in percentages of home ownership. But that lag is not predicated on how much of the “value” of their properties they own but just on titled ownership. If the statistics are adjusted for the value of mortgages very few Canadians truly own their own homes.

The only benefit of Canadian home ownership during the past decade has been that rents are more expensive than mortgages. As a result, Canadians have been lining up, often on a voluntary liquidation basis, to get mortgages with little or nothing down.

The Trudeau government made it easier for Canadians to access RSPs to use their savings as down payments for house purchases. The problem with that is those consumers have liquidated a tangible asset and converted it to debt. Now they own nothing, their RSP disappeared into a government mandated insurance for the lender and the costs of legal fees, leaving the new home owner with a 100% mortgage debt.

The new rules will exclude many new purchasers, as well as existing home owners, from qualifying for more expensive properties. It is possible that the change in qualified prospective purchasers will impact house pricing, either causing the market to stall or fall. Neither of which need be a bad thing.

However, with Canadians carrying record levels of consumer debt, on credit cards, lines of credit and so forth, mortgages will no longer be available for consolidation purposes. Consumers carrying excessive levels of debt will need to find alternative solutions such as proposals or bankruptcies.