Federal Mortgage Changes and its impact on Mississauga Real Estate

Federal Mortgage Changes do not support majority of Home Buyers

The new federal mortgage changes is going to hurt first time buyers more than any other segment in the real estate market. The federal mortgage changes are said to be benefiting banks more than home buyers and low-cost lenders (many small lenders are on the verge of closing down). The other concern being voiced is that the new rules will not affect foreign investors who are actually contributing towards driving up home prices in big cities like Vancouver and Toronto.

As of October 17th, mortgage applications are to undergo a “stress test” to evaluate the home buyer’s ability to pay mortgage payments at a higher interest rate (which is currently at 4.6%). This will apply to all insured mortgages, including fixed rate with one or five year plus term.

With the new federal mortgage changes, people will be able to get about 18%-20% lesser mortgage than what they would have earlier.

As a thumb rule, home buyers with no debt, good credit & $100,000 household income will be approved for property worth approx. $460,000 with the new rules. Earlier this amount would have been around $575,000.

Every buyer gets affected by the new federal mortgage changes

One of the biggest impacts of the federal mortgage changes is that first-time home buyers paying less than 20% down payment will be the hardest hit. Many will be turned away from freehold home buying. Renters who have been dreaming of owning a home will find it much harder to buy a home. The math is simple. While people may be able to afford a monthly rent of $1,500, they may not be able to pay say $1,200 in mortgage, plus other monthly costs associated with home ownership. This could mean that some renters will remain renters for a longer period of time.

People looking to up size will also be impacted. For example, if people are looking to move from a condo apartment to a freehold property, not everyone will qualify for a larger mortgage amount. They too might end up compromising by buying a condo townhouse instead. Condo townhouses in Mississauga or elsewhere cost less than their similar sized counterpart in freehold properties, something of the same age or in a similar neighbourhood.

If fewer people qualify to buy bigger homes, then the demand for these homes will drop. This could lead to cooling off of Toronto and Mississauga home prices. Some sort of price correction will happen. Either prices will not grow by double digits, or they might stop growing as rapidly as they did in the past one year. Most realtors or industry people I have spoken to, feel that first time buyers have been simply pushed out of the race for home buying.  On the other hand, many agree with the upside of the new rules, which aims to cool down the price surge of freehold homes.

Almost every decent freehold home sold with many multiple offers in 2016. And almost 50% of the offers came from people putting down 5% to 10% down payment. The new rules are designed to eliminate this risky segment out of the market. So now we can see fewer multiple offers and better pricing for freehold homes in Mississauga and elsewhere in the GTA.

Properties above $1 million will not be affected by the new rules, as they require a minimum 20% down payment.

Typically, it is the first time buyers who put less than 20% down payment. But they are also mostly looking at properties in the range of $500K to $600K. Now these potential home buyers will have no choice but to look at condos, at even lower price points. Or they may think of renting instead of buying. As explained above, household income of $100K will now qualify for not more than $460,000 property, as a thumb rule. I cannot think of anything except condo apartments in this price range.

With this outlook, it is imperative for more affordable renting to be available in Toronto and Mississauga. The point is that if home buying is being made difficult, then more condo options need to be made available to consumers for buying and renting.

Federal Mortgage Changes mean Good News for Mississauga condos and Square One Condos

With the new federal mortgage changes in Canada, condominium living is going to be the most affordable home buying option for a majority of home buyers in Toronto and Mississauga. In fact, it might just be the only home buying option for first time buyers and Gen Y buyers looking at home ownership in Mississauga and Toronto.

Even within these two markets, Mississauga will continue to be the preferred choice due to affordability. With many builder new condo projects coming up in Square One, Downtown Mississauga will provide many condo buying options to investors and home buyers.

I have been talking about the potential of Mississauga condos for quite some time now. The way the Mississauga real estate market is moving and now these new mortgage rules continue to support my thinking and projections.

In fact, developers are paying attention to the needs of condo markets and are coming up with projects that meet the needs of both buyers and renters. Rogers M City, a major upcoming 10-condo towers project in Square One will offer condos both for sale and rent.

City of Mississauga’s vision over the next decade is well-poised to tackle this challenge in Square One with the new hi-rise condo project developments, pedestrian-friendly streets and commuting infrastructure.

Federal Mortgage Changes 2016 – Canada’s New Mortgage Rules

Federal Mortgage Changes can be broken down into 4 major changes. The new rules were announced in Ottawa on October 3rd and come into effect on October 17th.

  • Expanding a mortgage rate stress test to all insured mortgages. This measure will affect home buyers with at least 20% in down payment who might get stretched too thin if interest rates rose. Lenders looking to buy insurance backed by government for low ratio mortgages will also be affected.
  • Government to impose restrictions to providing insurance on low-ratio mortgages This measure is aimed at lowering government’s risk in residential mortgages for $1M+ properties. Such property prices are very common in Toronto and Vancouver.
  • New reporting rules for primary residence capital gains exemption Anyone who sells their primary residence will be obligated to report the sale to CRA. This change aims to prevent foreign buyers sell homes and claim primary residence tax exemption.
  • Government to launch consultations on lender risk sharing. This risk sharing measure with banks, could lead to higher mortgage rates for home buyers.

Why these Federal Mortgage Changes are being put in place?

These measures are in response to concerns with the sharp increases in home prices in major cities like Vancouver and Toronto. It is a vicious cycle indeed. Higher home prices mean a higher chance of default should mortgage rates rise in the future. The government aims to limit its financial obligations in case of widespread defaults. On the same token, the measures also aim to encourage prudent lending practices. It is targets foreign home buyers who evade capital tax by claiming the property to be a primary residence. The Foreign Buyers Tax that was implemented in B.C. has adversely affected home sales in Vancouver. Ontario government is apprehensive on this account and is yet to announce a similar tax. The federal mortgage changes might also be able to address some of the concerns that foreign buyers tax purports to do.

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This is the right time to buy Square One Condos

Mississauga condo prices are on a growth trajectory. Grab the opportunity to invest in condos now rather than later.
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My two cents!

Even before the new mortgage rules came in, I have been talking about how Square One Condo market is changing. This year, I have seen the fastest growth in Square One Condo prices. This trend should continue for the next year too.

Here are a few examples: An average condo that used to sell in One Park Tower for $255,000 in December 2015 jumped to $275,000 in October 2016. A two-bedroom starter condo at Ultra Ovation that used to sell for $315,000 in March 2016 jumped to $365,000 in September 2016. An average price of two-bedroom unit at 325 & 355 Webb Drive that used to sell for $255,000 in December 2015 jumped to $320,000 in September 2016. View Square One condo prices in detail.

Good units get snapped up as soon as they are put on the market and I can foresee a surge in demand for starter two-bedroom or larger units.

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