New mortgage rules may not have an effect on home prices in the region, but they may have an effect on how much you can borrow from the bank.
President of the London St. Thomas Real Estate Association Stacey Evoy says the new rules, which came into effect on Monday, are an effort by the federal government to reduce household debt, much of which is caused by home-ownership.
Home buyers with a down payment of 10 per cent must now qualify for the Bank of Canada’s five-year-fixed rate at 4.64 per cent.
Evoy says that stress test is being done by the government for Canadians’ own financial safety.
“They feel like Canadians are stretching themselves too thin, and that if there’s any sort of change in interest rates, that people will be into trouble,” she said. “What’s happened is household debt was at 66 per cent. Today, they’re estimating that it’s at 101 per cent.”
“They’re saying for every dollar earned, Canadians are more than a dollar in debt, and the largest item of debt is residential mortgages.”
One example of the new regulations is that a homebuyer who qualified for a $200,000 mortgage last week may only qualify for a $155,000 mortgage now.
Another reason the government has put the new rules in place is to cool off the red hot markets in Toronto and Vancouver where house prices have skyrocketed.
Canadian Mortgage and Housing Corporation CEO Evan Siddall said in an opinion piece Monday that affordability concerns have spilled over from those two cities into nearby markets.
However, Evoy says the spill hasn’t reached the London region.
“Even when there’s been a market correction, there was such a small dip it was barely even noticed. So, even when there was a drop in sales, it didn’t necessarily equate to a drop in average price,” she said. “The housing market in the London and surrounding area has really remained stable, historically.”
Canadian mortgage brokers admit there was a marked increase in borrowing last week, as home-buyers tried to beat the deadline. Some brokers estimate the surge was as high as 40 per cent.