The past few years the insurers, banks and mortgage lenders have been extremely cautious when it comes to lending their funds on certain products and products, many programs have been tightened up, some are in the history books and others are on the chopping block.
Over the years we’ve seen the mortgage insurers (CMHC, Genworth, Canada Guaranty) drop amortizations from 40-30 years, to refinance one now can only obtain up to 85% of the value of your home, qualifying for less than a five year fixed now requires you to qualify for the Bank of Canada’s qualifying rate-which is the posted rate, insurer’s now require 20% down to insure rentals, guidelines for the self-employed are stricter and insurer’s no longer finance home equity lines of credits.
The reasons for the changes are obvious to many federal finance insiders as they need to protect the Canadian consumer and the national economy from teetering to the ways of the U.S. and many other westernized countries.
They’ve basically looked at the statistics, checked with industry leaders and made sweeping changes to the parts of the books that are the most delinquent. The most delinquent accounts statistically are the self-employed, consumers with rental homes and surprisingly new Canadians.
There have been drastic changes to the self-employed underwriting guidelines over the past few years, mostly common sense ones though. For example, prior to 2008, if you were self-employed for two years had marginal credit, and low personal income, the rules stipulated that you can buy a home under the ‘Stated Income’ program. Let’s say your company made $60,000/year and you took a salary of $30,000/year, but you needed an income of $100,000/year to qualify for the home you wanted to buy-based on debt load and affordability. Well there was a program available for you with only a 5% down payment. Even though most of those consumers with this product are paying down their mortgages in a regular fashion, there is a higher percentage of them that are not compared to the first time buyer programs-and it’s them that the government is concerned about.
There are hundreds of books in the market that teach about owning real estate and buying investment properties. Although the housing market in Alberta is very strong right now, but if you’ve only read a book about buying investment properties and not spoken to industry professionals nor anyone that’s owned a rental home, this is an area of investing that can catch you off guard. The demographic that is struggling here is those that bought real estate to ‘flip’, these are what the government call property speculators.
New Canadian delinquencies are somewhat surprising to me. Those that I have as clients are very well versed in Canadian home ownership and credit and have struggled to obtain their home. They have to work harder than most Canadians even understand, to come up with their down payment and their qualifying criteria are typically more strenuous as well.
Currently the government is reviewing all of the above programs with a lot of scrutiny and the information they find will certainly mean more strenuous underwriting guidelines to come. Some of them I’ll agree with, others I likely will not.
Jean-Guy Turcotte is an Accredited Mortgage Professional at Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments or questions at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.
