CMHC changes designed to protect home buyers will take effect July 1, 2020

Saturday Jun 27th, 2020

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Earlier this month, the Canadian Mortgage and Housing Corporation (CMHC) announced changes to mortgage eligibility rules for insured mortgages. CMHC provides insurance to home buyers to protect lenders if a homeowner were to default on their mortgage. If a buyer purchases a home less than $1,000,000 and has less than 20% of the purchase price as a down payment, mortgage default insurance is mandatory. (Homes with a purchase price of $1,000,000 or more are not eligible for CMHC insurance.) These new rules are designed to reduce the risk for future home buyers and are in effect as of July 1, 2020.Most affected are first time buyers

CMHC Mortgage Eligibility Rule Changes are as followed:

  • At least one applicant’s credit scores will need to be at least 680, up from 600.
  • The maximum total debt service ratio is now 42, down from 44.
  • The maximum gross debt service ratio is now 34, down from 39.
  • Finally, buyers will no longer be able to borrow money for a down payment.

In a press release dated June 4, 2020, Evan Siddall, CMHC's President and CEO, said, “COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians. These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.” Evan Siddall went on to further release this statement on twitter defending the CMHC's decision.

In response, Genworth MI Canada Inc. announced that it was not planning to change its underwriting policy, stating that it's existing policies allow the company “to prudently adjudicate and manage its mortgage insurance exposure.”

So, what does this mean for homebuyers?

Recent showing and offer statistics show that the real estate market in the region has definitive signs of bouncing back. This means as consumer confidence returns to the market place so have buyers and sellers.
 
 
Where once fiercely competitive, those downsizing or buying their first homes were often faced with multiple offers. These rules will evidently lower the demand in these categories, specifically for first time home buyers who do not have 20% as a down payment.
 
 
Honestly, I'm not sure if tightening the CMHC eligibility is the real solution here. What I feel we are lacking is more and varied housing styles, including more transitional, family-style, housing in our urban communities.

 

 
That, however, is a conversation for another day.

 

 
Scott Brubacher, Broker
Royal LePage Meadowtowne, Brokerage
Tags: mortgage updates

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