Since 2008, the Canadian Government has implemented stricter rules for mortgage lending in an effort to avoid the negative economic impacts of a potential real estate crash. Well, in late October 2017, the Office of Superintendent of Financial Institutions took this to a whole new level. This new “stress test” is the strictest new set of rules the mortgage industry has ever seen. As one mortgage expert quoted by the National Post stated,
“Given where our housing market and debt levels are at, this is the most ground-shaking mortgage rule change of all time. That’s not hyperbole.”
Basically, starting on January 1, 2018, people with more than a 20% down payment will get far less of a mortgage approval than ever before: up to 20% less house.
The reason behind the changes makes sense. The Canadian real estate market—including London, Ontario—has escalated so quickly and there seems to be no sign of it stopping, at least any time soon. But, the problem is, people’s incomes aren’t rising at the same levels, which means that Canadians have had to borrow more and more to be able to afford a roof over their heads.
So, in preparation for the upcoming changes, what can you do?
Here are 3 of our top tips:
1. Come up with a 20% down payment.
This option can be a daunting task. Especially if you are a first time home buyer, though, the more that you put down on your home, the better your financial life will be in the future. Maybe you can you wait to upgrade your car and save the difference in payments? Can you take a break from eating out and pack lunches to work? For holidays and birthdays, can you provide experiences or make a gift instead of something more expensive?
Remember, you can also receive a down payment as a gift. If you are in line for an inheritance, even if it’s a small amount, you can ask if you’d be able to put some of those funds towards your down payment now as an investment in your life. (Hint: gifting an inheritance before someone passes away will also save on taxes).
2. Start smaller
There’s nothing wrong with starting smaller, whether it be a one-level house rather than two, an apartment, or buying in an up-and-coming neighbourhood or a smaller town just outside of the big city. The most important thing is taking action, because getting into the market sooner than later is what matters. In a few years, you’ll likely have saved enough equity—and be farther ahead in your career—that you can take the next step with more cash on hand and home-owner experience.
3. Buy now
The new mortgage rules don’t go into effect until 2018, so now is a great time to get started on your home buying process. Here’s some more information to get you started. You can also get started with a pre-approval online or call us at 519-649-2834.
We’re here to help every step of the way, so don’t hesitate to be in touch to ask us any questions or get the process started.
Thanks for reading!
Your London, Ontario Mortgage Brokers