Changes to mortgage rules will impact South Georgian Bay area
Not everyone in the South Georgian Bay area is sold on the new mortgage rules put out by the Canadian government.
The government changed the rules to government-insured mortgages on June 22 in an attempt to cool the market, which has seen house prices rise while interest rates stay low. If interest rates were to rise, Canadians would see higher mortgage payments which could be a problem for those on a tight budget.
“Their wages will not rise as quick as interest rates when they do,” said Donna Mullen, a broker in Wasaga beach.
One of the new limitations on mortgages would be on those who don't have a down payment of 20% or more. They will now be limited to an amortization of no more than 25 years, five less than the 30 years offered under the previous rules.
Mullen says the changes to the rules are unfair to people in this area.
“We have employment on the service level, those wages are lower than the average management wages and professional wages,” said Mullen. “So changing from 30-years to a 25-year amortization changes the ability for those income earners to buy a home, and that is no reflection on their money management skills.”
Mullen says the area also doesn't have a lot of alternatives for home buyers with a low income.
“We don't have a lot of affordable housing in our region. So how many people have we knocked out of being able to buy a home?” she said.
The government is limiting the percentage of household income being used to pay for housing - mortgage payments, property tax, and utilities - at 39%, and the total debt service at 44% of income.
Mullen says Canadians are responsible with their housing debt and it's credit cards the government should regulate.
“The government has to look at credit card companies,” she said. “That's where consumers are being hurt the most, through unsecured debt.”
Mortgages are the only area of debt that the government can control because it is the one that insures the debt, said Mullen.
“The government was hoping that interest rates were going to rise sooner than later, and by the looks of things, it looks like it's going to be later,” said Mullen. “The only way to control that type of debt is to lower the amortization.”
With fewer people able to afford to buy homes, more will have to rent.
“It's going to be more restrictive,” said Gail Michalenko, executive director of the Georgian Triangle Housing Resource Centre. “First-time home buyers who are currently renting will not qualify.”
Michalenko says the impact of the new rules will trickle down to renters.
“We already have a very low vacancy rate,” she said. “There will be less available.”
Michalenko isn't sure if this area will see a reduction in housing prices as a result of these new rules.
“There is such a high number of people who are willing to pay,” said Michalenko. “We're in an area where there's a lot of appeal to relocate here.”
The same day the Federal government announced changes to the mortgage rules for their guaranteed mortgages, the Office of the Superintendent of Financial Institutions Canada (OFSI) announced changes to their Residential Mortgage Underwriting Practices and Procedures. The most significant change to the practices and procedures is the loan-to-value ratio of 65% for home equity lines of credits, a significant reduction from the current 80%,
Mullen says this will mostly affect small businesses who employ many people in the community.
“A lot of small business people rely on lines of credit against their property for cash flow,” she said. “This doesn't mean they are bad money-managers.”
The changes to government-insured mortgages will take affect July 9.