With the recent implementation of Federal mortgage rule changes known as B-20, approximately 10% of borrowers will no longer qualify for home ownership. The main reason is the implementation of a qualifying stress test 2% higher than a purchaser’s actual contract mortgage rate. The result is a 20% reduction in buying power, which will force some potential buyers to the sidelines.
While the Feds aren’t proposing any additional measures to cool our housing market, we are hearing of potential changes in provincial rules next month that may close the bare trust loophole. A Bare Trust is a corporate entity often used in large residential and commercial transactions allowing beneficial ownership to be transferred without changing title and incurring property-transfer or foreign buyer taxes. The elimination of this loophole will affect developers and investors alike, and ultimately increase the cost of land acquisition. Demand for housing and rental accommodation continues to outstrip supply especially as new mortgage rules push more people into rentals. We expect Real Estate will remain a focus of government this year!
Mortgage Market Segmentation
Over the last few years, we have seen a multitude of mortgage rule changes. This has resulted in a more competitive market as lenders compete for a smaller pool of eligible borrowers. Competition has resulted in greater product segmentation which will continue as a trend this year. For example, here are some of the larger segments:
Deposit Taking lenders
Banks, Trusts & Credit Unions Non Deposit Taking Lenders – Wholesale Lenders such as First National, MCAP, CMLS, Paradigm Insured/Insurable – Loans that meet eligibility of Default insurers such as CMHC, Genworth, or Canada Guaranty Provincially or Federally Regulated – Qualification guidelines differ between Provincial and Federal Regulators Alternative Lenders – Institutional, Mortgage Investment Corporations, Syndicates, Private Lenders
Within each of these segment, lenders look for niches where they can compete and stand out.
According to a recent survey, nearly 40% of first-time buyers in Metro Vancouver had help from a parent or grandparent with their purchase. The need for help from family is being driven by a tight rental market, harder qualification guidelines, and slowly rising interest rates. For borrowers fortunate enough to have assistance from their family, planning and evaluating how parents/grand-parents can best assist is part of what our team does best. We look forward to working with families who want to help their children get into the market.
Mortgage Loan and Broker Technology
Financial technology is an ongoing focus of mortgage brokers and lenders. As an industry, Lending and Finance have historically lagged other industries in Canada. This is changing in a big way as companies become mobile friendly and invest in technology to improve process automation for a better consumer experience. Knowledge and speed have always been a mortgage brokers best friend. Recent industry consolidation in the mortgage broker space is allowing more funds to be diverted to technological improvements to serve you better. This is why Team RRP moved to Dominion Lending Centres on December 1st.
We always have your best interests in mind. By keeping an eye on industry trends we can help you navigate the ever-changing mortgage market.
Use Team RRP’s mortgage calculators to help you plan 2018 by clicking the button below.