More government rule changes looming

Well the rumour mill has started about new mortgage regulations once again.

Last Thursday, Benoit Durocher, senior economist with Desjardins wrote, “The third series of government mortgage rules was announced nearly a year ago now, and we must conclude that the tightening introduced to date has not slowed the market enough. Under these conditions, it is likely, and perhaps even desirable, that the federal government will shortly announce a fourth series of measures to further limit mortgage credit.”

I really hope Benoit is just stating an educated guess, but what he writes almost sounds like he has some insider information.

He also added, “Among other things, the government could be tempted to once again raise the minimum down payment on new loans as it went from zero percent to 5 per cent in October 2008.”

Many economists and home industry insiders believe that a down payment increase would have a more negative effect than a reduction in the maximum insured amortization from 30 – 25 years.

The down payment scenario is one that would cause many to wait even longer for their first home. In my world, about half of my clients don’t require outside help from family with regards to down payments, about 25% require a little bit of help, maybe just a few grand to top them up then the other 25% obtain most of their funds from a family member, and may likely have up to half of their own.

An increase to 10% would mean an average down payment of $28,000 for those living in the Red Deer area according to MLS values, and likely stretching a home purchase for several months to years. With the first time buyer accounting for about half of real estate unit activity (according to Altus Group research) this could be devastating to the economy and an unreasonable policy to bring about at this stage of slow national growth.

Canadian’s have weathered the storms during the past four years with many changes to the mortgage rules, such as, lowering of the amortization from 40-30 years, (likely to be 25 years if the government moves forward), tightening of the self-employed qualifying rules, and dropping the refinance loan-to-value to only 85%- which to me is the most devastating of them all.

A reduction in amortization from 30-25 years will cut a typical buyers maximum purchase price by about 9%. For example if you qualified for the average home price of $279,613 with a 30 year amortization you’ll now only qualify for a price $257,000 with a lowered amortization of 25 years.

Each of the times the government changed the rules, it all started with a little sniff here and there, and no one truly believed the changes were coming. If Las Vegas was to bet on changes coming, they’d be betting 100% that more are on the way based on history. I don’t think they’ll change the down payment rules, but I do think that the amortization is dropping again, and they’ll further tighten regulations for the self-employed individuals. All of this without a word about consumer credit card debt being an issue at all makes me wonder who the real puppet master is?

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres Reginoal Mortgage Group and can be contacted for appointments or questions at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.

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