Let’s face it, in my humble opinion the federal government went overboard on imposing mortgage regulations as of January 1st, 2018. Namely the “Stress Test”.
We are now seeing the unintended consequences of their actions a year later. Higher costs for Canadians with fewer mortgage financing options. The stress test essentially qualifies you at the greater of 2% higher than your contract rate (what you payment is based on) or the benchmark rate currently at 5.34%. I can tell you that with rates rising, the 2% above the contract rate wins out most times which makes it even harder for a client to qualify.
There have been over 34 changes to regulations since July 2008, both federally and provincially that have brought us to this point. The rule changes have had a cumulative effect over years however, the “Stress Test” is the proverbial straw that broke the camels back as they say. The biggest contributor to these changes has been the federal government and it has left many wondering if they have gone too far. I for one believe they have and we are now experiencing the tipping point.
So, where does that leave us in terms of the lending environment in Canada? Many Canadians that would have been approved in 2017 with a very reasonable rate are now finding themselves unable to refinance, renew with another lender, or even purchase their new property without tremendous difficulty and cost. Self employed borrowers are hit especially hard as many programs that were available to them have vanished. Don’t get me wrong, there are still lenders out there that will take a common sense approach to business for self individuals however, you will not be able to get best rate in many cases especially if you need qualified income.
These regulations have directly contributed to the increase in private mortgage lending right across Canada as options have been diminished for most Canadians. As mentioned, we have to thank the federal government as it has had a hand in accelerating the growth in the private lending space.
In 2017, private mortgage lending accounted for approximately 5.9% of the mortgage market. In the fall of last year, exactly one year later it increased to approximately 8.7%. As of January 2019 that number is estimated at approximately 10% of the mortgage market in Canada. That is quite a rise! If the lending environment remains as is, then it is predicted to grow very quickly to approximately 15%-20% of the mortgage market in the next couple of years. This kind of growth indicates that borrowers are being forced to seek out alternative lending solutions with private lenders at a much higher cost.
If you are looking for a solution please give us a call. We have access to over 50 lenders including private lenders and will do our very best to make sure we exhaust all avenues to find you the most cost effective solution with accommodating features and terms for your particular situation.
Kim Gibbons, Mortgage Superhero ®
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