Important changes for first time buyers and investors
Paul Vieira, Financial Post Published: Tuesday, February 16, 2010.
Amid warnings about “reckless” housing speculation and overextended homebuyers, Finance Minister Jim Flaherty said Tuesday the federal government would make it tougher for people to get a mortgage.'
He said at a Tuesday morning media conference that Ottawa would require all borrowers meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage. This measure would apply to all first-time buyers.
Other rule changes unveiled would affect people looking to refinance their mortgages — lowering the maximum amount that can be withdrawn to 90% from 95% — and place a 20% minimum down payment for government-backed mortgage insurance on non-owner-occupied properties. This would affect people looking to buy condo units or duplexes for rental income. Previously, only a 5% down payment was required.
But Mr. Flaherty said the changes, to take effect April 19, were not meant to stop a possible housing bubble, as some warned was upon us unless Ottawa was prepared to act.
“There’s no clear evidence of a housing bubble, but we’re taking proactive, prudent and cautious steps today to help prevent one,” Mr. Flaherty said.
In other words, the Federal government has decided the Consumer can’t be trusted to decide for himself what’s a manageable amount of credit. While I ususally dislike our ‘nanny-state’ government telling us what’s good for us, it’s hard to argue against this policy after watching the United States economy fall apart because of irresponsible lending policies.
I doubt that first time Buyers will be affected by these qualification changes. In fact, my clients have always used a buffer-factor to protect them against rising rates. It only makes sense when interest rates are at 50 year lows.
High risk-high ratio investors may complain that this will limit how quickly they can build a real estate empire. I still think it’s in the investors best interests in the long run. If the Toronto Real Estate market is vulnerable anywhere, it would be in the fast moving condo investor market place where about one third of all newly built condos are sold to investors. Having a bit more equity in the deal can only have a stabilizing influence overall.
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