**This post will be updated as more information becomes available.
By Peter Kinch
There are two major sectors impacted by these new mortgage rule changes:
1. First time homebuyer's and/or anyone looking to buy a home with less than 20% down. The reality is that, as of today, you will have to show more income or qualify for a lower amount.
2. Non-bank lenders such as Merix, First National, etc. who use 'back-end' insurance on their mortgages will have to follow high ratio rules even if the borrower puts more than 20% down - that means no more 30 year amortizations, mortgages on properties over $1 million or mortgages on rental properties.
However, there is no indication that these rule changes will have any impact on conventional mortgages done at a Chartered bank or Credit Union. On one hand, that's good news but on the other, it means less competition - and that's never a good thing for the consumer.
The biggest impact for a real estate investor will be the loss of access to the ‘non-bank’ lenders for rental properties. Merix, for example, was one of the few lenders who still provided mortgages to investors in their company name – but as of today, they will no longer provide mortgages on rentals as a result of the new rules.
It is important to maintain perspective however – the loss of potential lenders in the rental space is never a positive thing, but cannot be confused with the fact that those mortgages are no longer available. From what we can tell Ottawa can still only impose restrictions on ‘insured’ mortgages and as such, a Chartered bank or Credit Union who ‘does not’ back-end insure their portfolios (a process that is largely blind to the general consumer) is still free to dictate their own terms for conventional mortgages – including rentals. So for the most part, it should be business as usual for those lenders when it comes to real estate investors.
Having said that, with the elimination of the Monoline banks as a player in that sandbox, there will be less competition so I won’t be surprised if we see the Chartered banks impose their own restrictions moving forward. Look for some Credit Unions to step up and take this as an opportunity to fill a void! The other area we’ll be watching very closely is ‘Cap-Space’ at each bank, as they will likely see an increase in mortgage applications from investors who may have otherwise chosen a Monoline.
So what does this mean to you as a real estate investor?
Quite simply - it becomes more important than ever before to be thinking two to three moves ahead when planning your mortgage portfolio strategy. You may be faced with few options, so which lender to choose and when to use them based on their Cap Space will become increasingly more important. If you plan to buy multiple properties moving forward, the BluePrint is now an essential tool for your success. Keep in mind, individual lenders may choose how to react differently over the course of the next month but when and how they do, you can be assured that we will incorporate that into your real estate investor Blueprint and help you integrate it into your overall business plan to help ensure your success – whatever Ottawa does next.
Peter Kinch is the owner of DLC Peter Kinch Mortgage Team and Co-Author of the #1 Best Seller “97 Tips for Canadian Real Estate Investors”.