Qualifying for a mortgage just got harder in Canada

Many variables in 2017 may negatively affect interest rates for homeowners in the Okanagan

It’s amazing how quickly the year has flown by and comes to an end and we look forward to 2017.

The year commenced with brisk home sales that continued through to the late fall. Home prices increased from January to November:

•January average home price was $529,908 with the medium home price being $488,500;

•November average home price was $597,000 with the medium home price being $550,000.

As you can see, there have been substantial increases in both of the above, year to date. Interest rates were at historically low levels and remained very stable over the 11 month period. One could still amortize their mortgages over 30 years and any term five years and over were qualified based on the contract rate.

The heavy debt load carried by Canadians caused concern for the Bank of Canada and Canada Mortgage and Housing Corporation. The main concerns came from substantially rising home prices in Canada’s two largest markets: Vancouver and Toronto. British Columbia’s Liberal government introduced a 15 per cent tax for foreign buyers in an attempt to curb the rise in home prices in Vancouver. They also increased the percentages for the property transfer tax to try to stem the rise in property values. As a result the number of sales and prices are moving lower.

As for Canada itself, stringent new rules were put in place to try to curb any further growth in Canadians’ debt loads. In October the government put in place a stress test for all high ratio mortgages. Canadians with less than 20 per cent down payment are now required to qualify on the Bank of Canada Benchmark Rate of 4.64 per cent rather than their actual mortgage rate currently 2.59 per cent for a five year term.

This was put in place to ensure that if and when there is an increase in rates the homeowner will be able to handle that increase. It will have an effect on first time home buyers as many will find it much more difficult to qualify at the higher rate. There were other strict measures put into place for those wanting to refinance their existing mortgages or purchase a rental/investment property. As well certain lenders will not amortize a conventional mortgage (20 per cent or more down) past 25 years.

As the year comes to a close, interest rates have risen slightly and qualifying for a mortgage has become more challenging.

Looking forward to 2017 there are many variables that may negatively affect interest rates. What will happen when the new President of the United States takes office? How will he react to free trade and Canada in general as a trading partner? Will the US raise interest rates and how will that impact Canadian rates?

Of Prime Interest is a collaboration of mortgage professionals: Darwyn Sloat: 250-718-4117 or dsloat@creativemortgage.ca; Trish Balaberde: 250-470-8324 or trishb@creativemortgage.ca; Christine Hawkins: 250-826-2001 or christine@creativemortgage.ca.