New mortgage rules taking effect Monday may hit first-time homebuyers hardest.
“It’s going to hurt a percentage of buyers that need every dollar the banks will give them. Some people just won’t be able to buy a place anymore,” says Sutton Group realtor James Garbutt.
Earlier this month, Canada’s Finance Minister Bill Morneau announced that buyers with a down payment of less than 20 per cent will need to qualify for the Bank of Canada’s five-year fixed rate of 4.64 per cent.
“For all mortgages, you’ve now got to qualify at a significantly higher rate. That means the same income can afford a smaller mortgage,” says Sauder School professor Tom Davidoff.
For example, a buyer with 10 per cent down and currently qualifies for a $527,000 mortgage will only qualify for $420,000 under the new rules; a roughly 20 per cent drop in purchasing power.
“This is going to impact people’s ability to bid so high because a lot of people are going to face limits on what they can borrow,” says Davidoff.
Some expect prices in Vancouver’s frothy market to fall as a result. Others say the move will at least put a halt on the housing frenzy and give buyers more time to make well-considered offers.
“This is going to shake up the market a little bit. It’s unfortunate some buyers won’t be able to afford what they won’t. But it may mean that there’s going to be less competing offers, less madness, and subjects will get back on offers and that will be a good thing,” Garbutt says.