First time homebuyers flocking to the West Shore will face a dramatic reduction to the amount they can borrow as a result of the federal governmentB次元官网网址檚 move to tighten mortgage qualifications later this month.
B次元官网网址淚tB次元官网网址檚 going to make a huge difference,B次元官网网址� said Cheryl Johns, a West Shore broker with the Dominion Lending Centres Modern Mortgage Group Corp. B次元官网网址淭hereB次元官网网址檚 nothing we can do about it.B次元官网网址�
Effective Oct. 17, buyers with less than a 20 per cent down payment B次元官网网址� most first-time buyers B次元官网网址� will need enough income to qualify at a higher benchmark interest rate posted by the Bank of Canada, even though their actual payments are based on the lower retail rates lending institutions offer.
B次元官网网址淚tB次元官网网址檚 called a stress test,B次元官网网址� Johns said, adding itB次元官网网址檚 a way to make sure homebuyers can weather an increase in interest rates.
Right now the gap between the two rates is around two per cent, so the rule is equivalent to a sudden interest rate spike of that amount for many buyers.
B次元官网网址淚tB次元官网网址檚 going to have a dramatic impact on affordability for millennials,B次元官网网址� said Cameron Muir, B.C. Real Estate Association chief economist. B次元官网网址淎s much as 20 per cent of their purchasing power has been eliminated. Many of them will be squeezed completely out of the marketplace.B次元官网网址�
Muir said a couple with combined annual income of $80,000 and a five per cent down payment can currently buy a home priced at about $500,000. B次元官网网址淭hatB次元官网网址檚 going to fall to about $400,000. ThatB次元官网网址檚 a $100,000 reduction in their purchasing power. ThatB次元官网网址檚 a substantial hit to affordability.B次元官网网址�
Johns noted a lot of first time buyers will now have to wait until home prices start to decline a bit, ask their parents for help with the downpayment, or wait and save up on their own.
ItB次元官网网址檚 the sharpest government-imposed cut to what new home buyers can afford in years, Muir said, predicting millennials will bear the brunt.
B次元官网网址淯nlike previous generations, their purchasing power has now been reduced through government policy.B次元官网网址�
Johns added that unlike previous moves to tighten mortgage qualifications, this one B次元官网网址渃ame extremely quickly.B次元官网网址� In fact, it was announced two weeks ahead of that Oct. 17 date, with a long weekend included in the mix, Johns said. B次元官网网址淓veryoneB次元官网网址檚 busy, weB次元官网网址檙e working hard.B次元官网网址�
Federal Finance Minister Bill Morneau unveiled the change as one of a series of measures to reduce risk in overheated housing markets.
Muir argued the mortgage qualification rule could have been phased in gradually. B次元官网网址淭he shock over a number of years wouldnB次元官网网址檛 be the same shock weB次元官网网址檙e now going to see in the markets.B次元官网网址�
He said the change threatens to have broader impacts, potentially triggering a drop in home construction activity, associated jobs and economic growth.
Helmut Pastrick, chief economist for Central 1 Credit Union, said he expects some drop in sales to first time home buyers as a result.
Unlike the foreign buyer tax B.C. has imposed only in Metro Vancouver, Pastrick said the federal mortgage qualification change is B次元官网网址渋ndiscriminateB次元官网网址� and applies everywhere, even where overheated real estate has not been a problem.
B次元官网网址淚t will ripple out beyond the first-time home buyer market,B次元官网网址� Pastrick said, adding existing owners seeking to sell or downsize are often dependent on a first-time buyer purchasing their home.
Pastrick is in the process of scaling down Central 1B次元官网网址檚 forecasts for real estate market and B.C. economic growth for 2017 as a result of the mortgage rule change. He expects a five per cent decline in benchmark home prices over the next six to nine months, coupled with lower sales.
But Pastrick predicts the real estate market will stabilize over time, not collapse.
B次元官网网址淢arkets will adjust B次元官网网址搕his is not the beginning of the end of the cycle,B次元官网网址� he said, citing the strong trends of growth for B.C.B次元官网网址檚 economy, jobs and population.
Johns had a slightly more positive view of the future of the West Shore real-estate market. B次元官网网址淧eople will always continue to buy homes B次元官网网址� WeB次元官网网址檒l have to go through some growing pains but weB次元官网网址檒l make it through,B次元官网网址� she said adding, B次元官网网址淚tB次元官网网址檚 still a good time to buy, rates are still nice and low.B次元官网网址�
For those that are still looking to buy, Johns said B次元官网网址渕ake sure you contact your broker, or myself, and get your finances checked.B次元官网网址� She also noted that having pre-approval in place before beginning your search is key.
B次元官网网址� with files from Jeff Nagel
katie@goldstreamgazette.com
Q: How can first time buyers come up with a down payment?
While some first time homebuyers will have to shelve their dreams - at least for a little while - with new mortgage qualifications taking effect on Monday (Oct. 17), others will be forced to find creative ways to put more money into their downpayment.
Often first time buyers will turn to parents or grandparents to help give them that extra boost when trying to put together a downpayment.
Another popular choice is pulling money from a Registered Retirement Savings Plan. Through the Home BuyerB次元官网网址檚 Plan, you can borrow up to $25,000 from your RRSP to use as a down payment on your first home.
Cheryl Johns, a West Shore mortgage broker with the Dominion Lending Centres Modern Mortgage Group Corp. , noted even with new regulations, now is still a great time to buy for many wishing to jump into the market.
The West Shore also offers first time buyers some more affordable options that can ease some of the pressure.
Rates are also still relatively low, she added, and a mortgage broker will be able to give potential buyers a good idea of what their price range is.
GREATER VICTORIA MARKET UPDATE 禄 MONTH TO DATE Oct. 11/16 COURTESY VICTORIA REAL ESTATE BOARD
禄 244/734 -- NET UNCONDITIONAL SALES / TOTAL, October 2015
禄 301/925 -- NEW LISTINGS / TOTAL, October 2015
禄 1,995/3,170 -- ACTIVE RESIDENTIAL LISTINGS / TOTAL, October 2015
