Posted by: Nick Ametrano
The following is a summary of key findings that came out of research conducted by the Canadian Association of Accredited Mortgage Professionals (CAAMP), the industry association that represents many of Canada’s bank’s and lending institutions regarding the topic of mortgages. The summary touches on the following areas:
• Current Mortgage Environment
• Federal Government Actions Taken
• Housing Market, a Reason for Current Concern
• Who Would be Impacted
The research on the mortgage market clearly reveals that borrowers and lenders in Canada have been prudent, and only a very small share of borrowers would have trouble affording future rises in mortgage rates. There are risks, but these risks are related to the broader economy including the impact of potential higher unemployment which would lead to the potential decline home pricing…these risks though can be mitigated against through strong economic management.
ONE PIECE OF ADVICE – The one piece of advice your mortgage advisor can give when helping you manage your mortgage strategy amongst all the noise that takes place in the marketplace, it is to review your mortgage strategy at least once a year with your mortgage advisor, REMEMBER IT’S FREE. This will ensure your mortgage strategy continues to be in line with current economic conditions and that your mortgage is updated to match up to new or upcoming changes in your life.
Current Mortgage Environment
• Canada has a well-earned reputation for exercising economic prudence. As a result, Canadians have managed to avoid a mortgage or housing market meltdown. The Canadian banking system is stable and our economy, while impacted by the general global economic slowdown, remains healthier than most.
• The Canadian mortgage industry is healthy
• Canada must continue to “stress test” our own financial sector to determine how it would withstand a potential weakening of the economy
• The more educated Canadians are about the debt we incur (mortgages, credit cards, lines of credit), the better off Canadians and the Canadian economy will be
Federal Government Actions Taken
• The federal government responded promptly when it was determined changes were needed in the mortgage market. There have been three significant sets of changes in the past 36 months:
o Amortization periods shortened to 30 years from 35 and 40 years
o Minimum down payment increased to 5 per cent of purchase price. No 100% LTV mortgages
o Homeowners refinancing their mortgage may borrow up to 85% of the equity in their home; down from 90% and 95%
• These changes have impacted the mortgage market; re-financings have dressed dramatically and mortgage credit growth has slowed
• Based on our extensive research and knowledge of the sector, we see no reason to further tighten or restrict access to mortgages at this time
Reasons for Current Concern
o Prolonged low interest rates are making it more attractive to purchase a home
o Research shows that the vast majority of homeowners can accommodate rate increases (84 % of people surveyed in the Fall of 2011 indicated that they could handle a $200/month increase)
o Mortgage borrowers are prudent, increase their lump sum payments and paying down their mortgage faster than required
o Supply and demand drive housing prices- provinces and municipalities should be more aware of their land-use policies and how they impact housing supply
Who will be impacted?
Further restrictions to access to mortgage will have a direct impact on the following:
• Self-employed borrowers who represent a growing portion of our labour force (currently 2.67 million people, or 15% of employment in Canada)
• New Canadians, who can afford a down payment but have yet to build credit and employment history
• First time homebuyers who want to enter the homeownership market and build equity
• These are not the people who fall in to a sub-prime loan category like we saw in the US; yet these changes will impact them
The housing industry is an engine of growth in Canada. If we impede its growth, we will add to unemployment and depress the economy.
If fewer mortgage lenders are able to insure their loans simply because the insurance program has not kept pace with the growth in the mortgage market, then consumers will have less choice when it comes to negotiating a mortgage. Less choice, or less competition, will inevitably lead to higher borrowing costs for the Canadian consumer.
Likewise, if mortgage brokers are restricted in the mortgage products they can offer, consumer choice will be diminished and costs will increase. This reduced access to capital will make it more difficult for people who can legitimately afford to buy a home to actually purchase one.
In the end, regardless of what changes take place in the mortgage market, whether restrictions or rates changes, be loyal to yourself first and NOT YOUR BANK!