The new government regulation governing the mortgage housing market. The volatile housing market in Canada has rocked much for both borrowers and lenders, especially the booming real estate market in Toronto and Vancouver. These are difficult times for borrowers and lenders. Traditional lenders, such as banks and alternative lending companies, are undergoing radical changes. In 2016, the new government regulation governing the mortgage housing market makes access to loans more difficult for borrowers. The new Canadian government's "stress test" rule requires borrowers to be able to pay their installments at a rate of 4.64 percent set for five years to qualify for an insured mortgage. That's about two percent more than what banks offer today. "This could solve more buyers' home buyers dreams for the first time in 2017 than the current government regulation ... This move should prevent about 20 percent of beginner buyers getting loans this year," according to The Globe and Mail.
Basically, buyers have to prove that they will be able to pay higher rates when this price goes up with some points. It's as if your credit card company suddenly makes you pay a higher rate, just because the rate can reach that level in a few years. This will not cost home buyers more money, but they should lower their expectations and settle for suburban homes rather than houses in booming urban centers. Due to the new government regulation, some alternative lenders have stopped their activities. Household debt in Canada has reached a record and 70% of this household debt is mortgage debt, according to the Huffington Post. People who pay mortgage and other bills account for 40 percent of their income can not get mortgage insurance from Canada Mortgage and Housing Corporation or through a private insurance company. Many of my clients turn to alternative loans for various reasons. Some have credit scores that are far from perfect. Others are self-employed, which complicates the feasibility of bank loans. Many Canadian immigrants face similar challenges when trying to buy a home.