In the last months of 2017, there was much commentary around pending Guideline B-20, a new set of federal mortgage affordability hurdles that include a stress test for low-ratio borrowers, the banning of co-lending arrangements, and tougher loan-to-value requirements for some properties.
Experts predicted the regulations would knock as many as 15 percent of buyers out of the market, and reduce budgets by 20 percent – but, after nearly two months in place, have they resulted in said market downturn?
One mortgage broker says that while winter conditions have been “business as usual”, there has been a notable shift among clientele, and he expects more change in the medium term. “We will definitely see a change in the spring market,” says Mike Bricknell, a mortgage specialist at CanWise Financial. “I can say that the quality of borrower is changing. We are getting a lot of deals down, but I would say three times the approvals are borrowers who cannot afford home financing that could have a year ago. They are absolutely pushed out of the market.”
Analysts expected the implementation of B-20 would direct more business to the smaller and alternative lender channels, as provincially-regulated credit unions and mortgage investment companies are not technically governed by OSFI’s federal requirements. Bricknell has noticed an uptick in placing clients at these types of institutions, as they currently offer the lowest rates on the market.
“Since our brokerage is primarily driven by offering borrowers lower rates, we are finding the credit unions, smaller banks, and trust companies offering lower rates than the bigger banks at the moment,” he says, adding the pricing is “likely due to the focus on the current RRSP and deposit season underway.”
However, this reprieve from “under the radar” lenders may be short-lived he says, as credit units choose to harmonize their regulations with the federal requirements. Such a change will be mandated in Quebec by March, and several Ontario credit unions have already proactively put Guideline B-20 into practice.
The year certainly kicked off with icy market conditions, with January sales plunging 14.5 percent across the nation and 22 percent in the Greater Toronto Area. Both the Canadian Real Estate Association and Toronto Real Estate Board indicated the new mortgage rules factored in the softer activity.
“The piling on of yet more mortgage rule changes that took effect starting New Year’s Day has created homebuyer uncertainty and confusion,” stated Andrew Peck, CREA’s president. “At the same time, the changes do nothing to address government concerns about home prices that stem from an ongoing supply shortage in major markets like Vancouver and Toronto.”
His sentiments were echoed by TREB President Tim Syrianos, who stated in the Board’s January report, “As we move through the year, expect the pace of home sales to pick up as the psychology impact of the Fair Housing Plan starts to wane and home buyers find their footing relative to the new OSFI-mandated stress test for mortgage approvals through federally-regulated lenders.”
However, real-time data shows that Toronto-area buyers are indeed regaining their footing post-stress test; mid-month sales numbers pulled from TREB and compiled by Zoocasa indicate dramatic month-over-month upticks across all home types. Toronto houses – which, with a buyer pool most likely to pay more than 20 percent down, will be hardest-hit by B-20 – saw a healthy 34 percent rebound in the GTA. Semi-detached homes rose 33 percent, while condo townhouses rose 47 percent. However, condos for sale in Toronto continued to lead the market with a whopping 92-percent sales increase between January and the first two weeks of February.
Meanwhile, Royal Bank of Canada – the largest provider of mortgages in the nation – revealed 6.4-percent growth in their fiscal first quarter. While a deceleration from the 6.6 percent seen in the last quarter of 2017, it remains the second-best earnings period in seven quarters. In all, the numbers indicate buyers are taking the new rules in stride, and the rules’ full extent will become known in the months to come.