The Federal Government has proposed changes that will tighten mortgage qualification lending rules. The proposed change would require homebuyers to face a stress test and qualify for a mortgage at a rate of 4.84% to ensure that they would be able to handle their mortgage payments should interest rates continue to rise.

At this time, only those homebuyers who are borrowing but are paying less than the 20% on a down payment must undergo — and qualify — at the stress test rate.

Tightened Lending Rules Will Hit First Time Buyers the Hardest

The government has released a number of initiatives with the intentions of cooling the booming Toronto housing market with the ultimate goal of making homes more affordable — especially for would be first-time buyers.

We’ve just begun to see the effects of these changes and, in my opinion, this proposal seems premature. The market hasn’t had enough time to adjust to the changes. Buyers are still waiting it out and there are still an increased number of listings on the market. The Canadian real estate market simply needs more time to adjust.

In addition, delinquency levels — mortgages left unpaid for 60 days or more — is at a considerably low level of 0.56%. With such a low delinquency rate, I’ve been asking myself if these initiatives are really necessary right now?

It seems that those who will be most greatly affected are those who the fair housing initiatives were designed to help. Rising interest rates mean higher mortgage payments and this will affect those at the bottom. These are the buyers who were previously ‘sidelined’ by rising prices, who were waiting for the market to balance out and who are the most price sensitive. They don’t have as much capital to put down and you’re affecting their buying power the most.

This seems to be counterproductive and at odds with the fair housing plan initiatives. I am of the belief that these initiatives are manipulating the market and that there is really no way to benefit one segment without affecting the others.

If you’re thinking about buying, selling, or investing and want to talk about the changes in the Toronto real estate market don’t hesitate to shoot me an email and we’ll setup a time to chat.

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