The Great Mortgage Reset
A FOUR PART SPECIAL EDITION… PART 3 of 4
Canada’s mortgage lending rules and policies are broken. They just don’t work. And the more our Federal government tries to help, the worse it gets. This is a 4 part series of what our government can do to make home ownership affordable.
KNOWING THE PAST WILL HELP OUR FUTURE.
I’m going to list some of the changes that have handicapped Canadians from buying and renting. There are over 30 changes over the last 18 years but I’m just going to list the ones that have had the greatest impact. Notice the pattern of ever tightening government lending rules that increase a homeowner’s
minimum monthly mortgage payment. But first, look at how inviting our mortgage rules were back in 2006. Some would argue they were too loose and perhaps this is true but I would argue the pendulum has swung way too far the other way. We’ve become way too tight.
2006
February. Canada Mortgage and Housing Corporation (CMHC) increases amortization from 25 years to 30 years.
April. Interest only payment mortgages appear. Borrow up to 75% of the value.
June. CMHC extends amortization to 35 years and accepts interest only mortgages to help stimulate the market but also to keep up with competition.
November. CMHC extends amortization to 40 years and allows for $0 money down payment.
2007
March. CMHC rolls out a self-employed borrower program aimed at helping self-employed people qualify for a mortgage more easily..
2008…the year of the US subprime mortgage crisis.
July. CMHC can see mortgage defaults rising in and shortens their maximum amortization to 35 years.
October, the US subprime mortgage crisis unravels and a global financial meltdown emerges. Everything from this point onward was about to change for Canadian borrowers.
2009
Panic set in and a large percentage of Canadians locked into long term fixed rate mortgages at over 5.00% only to see those rates come down to under 3.00% within 2 years.
Variable rates were well under 3.00% and sometimes under 2.00%. They would remain at these levels for the next 13 years until May 2022. Anyone in a Variable rate mortgage saved $$tens of thousands during this time. (yet the government would never endorse or recommend the Variable rate mortgage)
2010
The beginning of the mortgage tightening cycle that continues even today, September 2024.
April. Canada sets a minimum Qualifying rate for Variable rate mortgage and fixed rate mortgages for terms less than 5 years. (The Qualifying rate was 4.64% at this time).
April. Maximum allowable for a mortgage refinance is cut to 90% ltv from 95% ltv.
April. Maximum allowable financing on small rental properties is 80% ltv.
2011
January. Maximum amortization is cut again to 30 years.
January. Maximum allowable for refinance is cut to 85% ltv.
January. Secured lines of credit no longer qualify for CMHC or any default insurance.
2012
June. Maximum allowable for refinances is reduced to 80% ltv effectively removing the possibility of getting a default insured mortgage for refinancing purposes, effectively costing Canadians higher interest rates.
June. Homes valued over $1million will no longer qualify for CMHC insurance effectively making mortgage financing more expensive for Canadians.
June. CMHC Amortization is cut again to 25 years.
June. After seeing the negative impacts of all these credit tightening rules, the government increases the maximum allowable debt servicing ratios from 32% to 39% of your gross income for housing costs.
2015
December. The government increases the minimum down payment on homes over $500,000. You can get up to 95% ltv financing on purchases up to $500,000 but between $501,000 and $999,000 you must put 10%.
2016
July. Canada is seen as a safe place to move your money. Real estate prices have skyrocketed. BC imposes a foreign buyers tax of 15%.
October. The stress test will be imposed on all CMHC insured mortgages.
November. Vancouver imposes a 1% vacant home tax. The goal is to eliminate or reduce speculators. (this has not slowed the flurry of home buying activity)
2017
January. CMHC raises their insurance premiums costing home buyers between 12% and 15% higher default insurance premiums.
April. Ontario joins the foreign buyer’s tax party and will begin adding a 15% tax.
October. The government brings in the B-20 rules forcing federally regulated financial institutions to perform a 2.00% stress test on all mortgage financing. That’s 2.00% above the Big Six Banks posted 5 yr fixed rate. That’s about 7.00% today.
October. The government prohibits adding a second mortgage to bypass the maximum 80% loan to value rule. This handcuffs buyers that don’t qualify using traditional income verification.
2019
March. Federal government announces an unpopular program called the First-time home buyers incentive.. Effectively, it is a shared ownership program where the federal government will share in the ownership of the home in return they will give you up to 5% of the down payment on resales and 10% on new construction homes. (no industry experts were consulted that I’m aware of.. If you’re out there, reach out to me.. I can’t find anyone to openly admit they supported this foolish idea).
2020
June. During COVID, CMHC announced tighter mortgage qualifying. Gross debt service maximum (housing costs) would be 35% from 39%. Total Debt Service maximum (housing costs + all other personal debt) would be 42% from 44%. They also raised the minimum credit score from 600 to 680.
2024
July. The latest change, and I’m still not sure whose brainchild this was, to put a new measurement cap that all Federally Regulated Financial Institutions (FRFI) must adhere to.
Follow me on this for a minute.. its a bit confusing but I’ll try to explain. It’s called the Loan to income limit or I refer to is as the 4.5 x rule.
https://www.osfi-bsif.gc.ca/en/news/loan-income-limit
The Office of the Superintendent of Financial Institutions (OSFI) has mandated Banks (FRFI) must ensure their overall lending portfolios of new mortgage loans, secured lines of credit do not exceed 4.5 times the borrower’s income. This is set to begin in fiscal Q1 2025 for each financial institution. And while it doesn’t directly limit a specific borrower to this limit, the banks will need to ensure they stay within the 4.5x income. Another rule to limit access to mortgage money or to the equity in your home. I don’t see the logic of this rule.
July 29. We are finally beginning to see the government start to make positive changes. The government extends amortizations to 30 years BUT only for first-time homebuyers purchasing new builds. (this would do little to help Canadians get a home but it’s better than nothing)
September 16. The government expands access to the 30 year amortization to first-time buyers for resales too. (this is better but it still isn’t enough to move the needle towards more home ownership)
The government also announced it would increase the price cap for insured mortgage from $1million to $1.5million. This will help those buying in larger markets like Vancouver and Toronto. But I don’t see this moving the needle on making homes more affordable.
We are seeing some government change but it’s not the changes we need.
In Part 4 I will deliver a detailed plan of what I believe are the necessary changes to make housing more affordable.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; steve@canadamortgagenews.
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Steve Garganis View All
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.
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