For the most part, it seems people are happy with the new mortgage rules that the Federal government announced last week – primarily because they give the impression of protecting homeowners, without really impacting the average homeowner at all.
After all, they’re less intrusive than increasing the minimum down payment or decreasing the maximum amortization again. They really clamp down on speculative real estate investing and discourage people from using their home as an ATM. And, let’s face it, given the responsible nature of the brokers and agents that make up the Axiom network, most of us were likely implementing these rules on our own, anyways.
But, given the diversity of the Canadian real estate market, it would be impossible to create a one-size-fits all answer to a potential housing bubble problem – and there are some areas of the country that will suffer from the new rules.
For example, in Edmonton, where housing values have remained relatively flat over the past couple of years, long term investors – rather than speculators – dominate the investment housing market. According to Mark Kostelyk, an agent with Axiom Integrity First Mortgage Solutions in Edmonton, these investors are adding much-needed supply to the city’s rental market – and helping keep rents in check. The government’s new restriction – which increases the required minimum down payment for an investment property from 5% to 20% – will likely change that.
“I think this is going to hurt the rental market in Edmonton, because an investor who used to be able to purchase two condos with his $50,000 is now only going to be able to buy one. Eventually, that’s going to cause already-high rents to increase even more,” he says. “A smarter move would have been to say that if an investor opts for high ratio financing, they have to have a minimum five-year term. Then you know they’re not speculators – they’re in it for the long term.”
Kyle Hanson, of Axiom Innovative Financial Solutions in Calgary, also believes the new rules are lacking, primarily because they don’t target the most dangerous issue that could lead to a housing collapse – homeowner debt loads that are too high.
“I have spoken with over 15 clients in the past month desperate to refinance their homes because they can’t handle their debt loads, but they don’t have any equity left,” he says. “It appears that banks are freely offering credit cards and lines of credit when they should be better evaluating the clients’ overall ability to repay – not simply make the minimum monthly payment. “
