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Allow me to take you back two weeks ago when Evan Siddall (CMHC’s President & CEO) was testifying before the House of Commons finance committee. You may have heard the media report a couple of things…
1) Housing prices with fall 9 to 18%
2) CMHC may get increase the down payment requirement to 10% from the current 5%
Firstly, there is no national housing market! So while markets like Toronto and Vancouver get hit, it doesn’t mean that Saskatoon, Winnipeg, Edmonton or even Calgary will share to the same degree. Real Estate is very much local.
What I found interesting and what CMHC and the Media failed to report, was that CMHC would be driving the 9 -18% decrease they spoke of.
But I digress…
Oh and before I continue, let me say there is one silver lining but you will have to read to the end to find out more about that.
Here are the changes effective July 1, 2020..
1) Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to 35/42 down from the current 39/44
2) Increase the minimum beacon score requirement from 600 to 680 for at least one borrower (this will likely be the main applicant (higher income earner))
3) No non-traditional sources of down payment that increases indebtedness
So what does this really mean?
Let’s get the non-traditional sources like borrowing down payment from a line of credit, credit card, etc…out of the way first. I couldn’t tell you the last time we had a situation like this come across our desk, but this one will certainly have no material impact.
Reduced debt service ratios on the other hand…
If we look at a household income of $90,000, their max purchase would be $450,000. Come July 1 their purchase power would be reduce to $400,000. And this is assuming no debt!
For us in Calgary, our purchase power may be further reduced by the property tax increase many house holds are reporting.
Lastly, the 680 credit score requirement. I believe this will be impactful given our buy now on credit and pay it off in 10 years mentality…I believe this has to change. I say that because credit reporting agencies are putting more reliance on utilization these days. So someone with a 760 score today who misses one or maybe two payments could see their score drop below 680 and boom, they are no longer eligible for mortgage default insurance.
And what about that person who has two credit cards that are maxed out? Well, they too could see their score drop under 680.
Or what about that person with a $3000 limit on their credit card and found themselves over extend at $3200, for example? They too could find themselves impacted.
But! And this is a big but… there may be a silver lining!
We have yet to hear from the two private insurers, Genworth and Canada Guaranty. They have the ability to maintain status quo as they don’t have to follow CMHC’s lead.
Because this announcement is not Federal Government or Regulator mandated. So the two privates can continue with business as usual should they feel confident doing so.
I suspect they will be speaking with the Department of Finance next to gain clarity and insight, so stay tuned for that announcement.
I will be sharing the details the minute I hear more.
Should you find yourself asking why these changes are happening now, that will have to be for another post, as I have lots to say on the subject. That said, feel free to give our office a shout and we can discuss further.
In the meantime, give us a call to better understand the impact and how you can best insulate yourself and your family from these changes should they become the industry norm. Time is of the essence as July 1 is fast approaching. If you haven’t done so already, reach out to a Canada Mortgage Direct Mortgage Planner at 403.250.2100, as we looking forward to speaking with you and/or anyone you may know who may be looking to purchase or refinance a home.