Abana Mortgages

2018 Mortgage Rules

By | Abana Mortgages, Industry Update, Mortgage News, Vancouver Real Estate

New mortgage rules coming into effect as of Jan 1st, 2018 are a seismic policy shift and is expected to hit the banks’ earnings in a substantial way. Meanwhile, none of the big 6 banks are raising any alarms. Why?

The federal government in the past 2 years has systematically and gradually choked off competitions for the big 6 banks by severely limiting access to capital for non-bank mono line lenders, forcing them to close down shop or merge with the big banks.

The latest set of rules will mean consumers facing renewals will not be able to shop for rates as they will be effectively stuck with their current lender or face much tougher qualification if they were looking to switch for a better rate.

So, while the big 6’s mortgage origination may take a hit with these rules, their retention rates will certainly rise significantly as consumers no longer have a choice and what they may lose on loan origination growth they will more than make up by taking market share from mono lines who no longer can compete.

Land Core Report

By | Abana Mortgages, Industry Update

With the Bank of Canada, raising the overnight rate by 25 basis points, speculations that a second raise in October maybe in the works is rampant amongst analysts. However, despite the above expectation GDP growth, Canada’s economy remains fragile, especially as the uncertainty around the future of NAFTA looms in on the auto sector. The impact of  a 25 BPS raise in the overnight rate , if matched entirely by the banks, are not  on a family with an income level of 100K/year who is looking to purchase a 750K condo, is 98$/month or about  $8,000 reduction in the affordability. While significant, this change is not in our opinion large enough to have a significant negative impact on the market, specially with the robust demand and shortage of available inventory. 

The newest residential Sales from Landcore, correctly points out that the impact of OSFI’s newest proposed changes to Federally Insured mortgages will have far more serious consequences on affordability. If these proposed changes are put into effect, borrowers seeking to purchase the same condo, would have to stress test under the posted bench mark rate that is typically 2% higher than the contract rate. The same couple under these rules would only qualify for a 585K purchase a 22% drop in affordability. Implementation of this rule, will significantly lower the supply of mortgage funds as the monoline lenders will not longer have any feet to stand on when competing with balance sheet lenders and invariably results in less demand as fewer borrower can qualify.

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