Each year, the Canadian Accredited Association of Mortgage Professionals (CAAMP) releases a report on the state of the Canadian mortgage market. A startling number from the CAAMP report reveals that nearly one out of ten Canadians no longer qualify for a mortgage due to the new mortgage rules employed earlier this year.
Buyers with less than a 20 per cent down payment, who are subject to mortgage default insurance on high-ratio mortgages, have been impacted the most. The new mortgage rule reduced the amortization period for high-ratio mortgages from 30 years down to 25 years, thereby increasing a buyer’s monthly payment and reducing their overall affordability.
In this year’s report, CAAMP found that 16.9 per cent of the high-ratio mortgages approved in 2010 would not be approved under the revised amortization restrictions that are in place today. High-ratio mortgages have been required for more than half (55 per cent) of the homes purchased, so far this year. If 16.9 per cent of potential home-buyers were removed from the housing market, then in combination with both high-ratio and conventional buyers, 9.3 per cent of ALL home-buyers would no longer qualify for a mortgage in today’s environment.
For this group of shut out buyers to qualify for a mortgage under the new affordability rules, they would need to save an additional $24,870 for their down payment. Assuming they were able to put away 10 per cent of their pre-tax income, it would take buyers an average of three-and-a-half years to save the extra money they need to make a down payment that would help them buy their home and have affordable mortgage payments. Ottawa clamped down on the mortgage rules in July of this year, to slow the pace of mortgage debt growth without raising mortgage interest rates. CAAMP says housing market figures reveal that both home sales and prices are down across the county, which confirms that Jim Flaherty’s change has had its intended effect.
Knowing how many Canadian buyers have been affected by the mortgage rule change, do you think it was too harsh?
Also, check out this graphic below that illustrates this better.