Flaherty to toughen mortgage rules, investment properties targeted

[markl]

Ahhh back to the days when I started investing when RRSP seconds were prevalent and people had to work at acquiring real estate. The past couple of years were great for financing and I am sure till April everybody and their brother who hasn`t refi`d will up to the maximum so they can continue to purchase property.

I feel old when I say something like this but do you remember when you had to put 25% down on every property you purchased

at least in the rental aspect. Thankfully I am in great cash flowing positions and in a lot of Single family homes and duplexes which will appeal to first time home buyers should I need an exit other then RTO

 

[housingrental]

I remember
I`m I too old now?
I wouldn`t mind seeing it go back to 25% through banks for uninsured
It`d probably cause a little pain though but not hurt the renter pool

QUOTE (markl @ Feb 16 2010, 06:54 PM) Ahhh back to the days when I started investing when RRSP seconds were prevalent and people had to work at acquiring real estate. The past couple of years were great for financing and I am sure till April everybody and their brother who hasn`t refi`d will up to the maximum so they can continue to purchase property.

I feel old when I say something like this but do you remember when you had to put 25% down on every property you purchased

at least in the rental aspect. Thank fully I am in great cash flowing positions and in a lot of Single family homes and duplexes which will appeal to first time home buyers should I need an exit other then RTO

 

[mortgageman]

I had the same question. It sounded like maybe multi-family buldings might be exempt for example.

QUOTE (bizaro86 @ Feb 16 2010, 10:18 AM) He`s also raising the downpayment that borrowers must pay for speculative investments. If prospective home buyers want to purchase a property where they will not be living, they will have to come up with a 20 per cent downpayment, Flaherty said.

"We`re not aiming here at investment properties" such as rental units, he said. "What we`re getting at is the speculation in multiple-condo markets, in particular."

http://www.google.com/hostednews/canadianp...2jDn8AtcpuM-1dw

This quote from the finance minister would seem to suggest that some investment properties will be exempt from the new 20% down requirements, on the basis of investment vs. speculation. Has anyone seen the specifics of how that will be decided, or am I totally off base?

Michael

 

[Thomas Beyer]

QUOTE (tbarcier @ Feb 16 2010, 09:14 AM) 20% down payment on investment properties. Ouch!about time .. as many investors are far too levered !

These new regulations will provide a less levered consumer, a slightly cooler house price growth and a more cautious borrower.

I think Flaherty could have gone the extra step and requiring a minimum 10% down payment as many people are too stretched with 95% mortgage, plus CMHC premium, i.e. essentially homes with 0 equity in them.

If you wish to live in a $400,000 home you should either have $40,000 cash to buy it, or buy a smaller home or rent a while longer !

I am a European immigrant with a history of renting until enough cash was available to buy.

Many folks are too levered or too stretched, and this announcement on Tuesday was a step in the right direction, but did not go far enough. Look what happened in the US, Ireland or the UK, where property prices dropped considerably more than in Canada, primarily due to excessive or too loosely regulated lending practices. Renting still has a stigma in Canada .. a stigma that does not exist in Europe or Quebec where renting is the economic choice of many because it makes far more sense than buying an over-levered, too expensive home.

 

[Gen1GT]

QUOTE (ThomasBeyer @ Feb 17 2010, 02:32 AM) about time .. as many investors are far too levered !

These new regulations will provide a less levered consumer, a slightly cooler house price growth and a more cautious borrower.

Are we talkin 1st class, 2nd class or 3rd class levers here? If investors are too levered, I`m assuming you`re talking about 3rd class lever, which has a its effort distance between the fulcrum and the load distance, like a jib boom. Or maybe you`re concerned about the increase in the polar moment of the lever in a 1st class lever, where the effort distance is longer than the load distance? Either way, I`ll keep my eye out for those levered investors.

 

[nikkibroker]

The rumor was to effect the first time buyer with increasing the 5% down payment to 10% down. This came as a shock to most of us in the industry. I`ve encountered the greatest "hurdle" with my investors as of late, in simply refinancing rental property. Now add in a self employed investor who keeps their income down on the books and forget it... Selling is something a lot are doing because getting a second to 50% LTV with Exorbitant fees just doesn`t make sense any more.

I understand that back 8 - 9 years ago investors understood they had to come up with 25% down (previous to GMAC) and worked around it via JVP`s and skirting the owner occupied rule. Easy to move forward, not so easy to move back. I wonder how all the new investors that were not around in those days will be affected by these new changes? It will greatly impact many people, I fear. When investors start selling to get large chunks of equity out, the renters will start to suffer.

I too agree that Flaherty targeted the wrong group. As a mortgage broker I can say that to qualify for 5% down on an investment property via CMHC you pretty much had to walk on water these days. I also agree that the lending guidelines in 2007 were a joke, with Xceed offering 100% financing with stated income for investment property. We are a 100 light years away from those products now.

Good luck, I say....

 

[JDaley]

QUOTE (ThomasBeyer @ Feb 17 2010, 12:32 AM) about time .. as many investors are far too levered !
These new regulations will provide a less levered consumer, a slightly cooler house price growth and a more cautious borrower.

I think Flaherty could have gone the extra step and requiring a minimum 10% down payment as many people are too stretched with 95% mortgage, plus CMHC premium, i.e. essentially homes with 0 equity in them.

Many folks are too levered or too stretched, and this announcement on Tuesday was a step in the right direction, but did not go far enough.

Well put! Far too many RE investors are levered to the hilt. That`s why lenders such as Firstline already have in place new rules for income properties. Speaking to a mortgage broker, FL have seen a dramatic increase in defaults among rental units, particularly in AB. A non-paying borrower is bad news for all of us. I too would have liked to have seen the minimum downpayment increased to 10% since this would have made it too diffcult to borrow the downpayment. There are too many people working around the 5% downpayment - 10% would have helped reduce this problem.

 

[Nir]

will apartment buildings (i.e. 10-plexes) be affected or will a good VTB option still allow putting only 10% down?
(assuming bank`s apprasied value, etc. is ok.. meaning question is about new rules)

 

[Thomas Beyer]

QUOTE (investmart @ Feb 17 2010, 10:35 AM) will apartment buildings (i.e. 10-plexes) be affected or will a good VTB option still allow putting only 10% down?
(assuming bank`s apprasied value, etc. is ok.. meaning question is about new rules)
my understanding is that 15% down is still the guideline for maximum leverage .. but given CMHC`s fairlt conservative underwriting guidelines 15% down (i.e. 85% max. loan) on CMHC value is actually 20% down (i.e. 80% max. loan) on real asset price .. and 30% down in most large cities.

VTBs are still allowed assuming enough cash-flow !

 

[ChrisDavies]

I did hear that they`re going to a 50% rental offset, which will have a real impact on qualifying.

 

[fumbrunner]

QUOTE (ChrisDavies @ Feb 17 2010, 11:52 AM)
I did hear that they're going to a 50% rental offset, which will have a real impact on qualifying.






Wow, if this is the case it will severely impact the serial investor. 50% is completely unreasonable given the actual costs of managing a property.

 

[Pump]

QUOTE (ChrisDavies @ Feb 17 2010, 10:52 AM)
I did hear that they're going to a 50% rental offset, which will have a real impact on qualifying.




what do you mean exactly?

 

[ChrisDavies]

The amount of the rent that they will count towards your income.

 

[TheVancouverMarket]

Too little, too late from Flaherty. But it depends if the 5 year rate banks use is the posted or discount rate. If it`s the discount rate I can`t see it denting people`s ambitions to own a home. Does a 4%+ five year discounted rate represent a brake on the market. I don`t think so...

Do any of the brokers out there know if they will be using a posted or discounted rate ?

 

[wealthyboomer]

QUOTE (ChrisDavies @ Feb 17 2010, 10:52 AM)
I did hear that they're going to a 50% rental offset, which will have a real impact on qualifying.


What is your source for this info?

 

[luckyluciano]

Lenders are using the discounted 5 year rates, no biggy.


QUOTE (TheVancouverMarket @ Feb 17 2010, 07:24 PM) Too little, too late from Flaherty. But it depends if the 5 year rate banks use is the posted or discount rate. If it`s the discount rate I can`t see it denting people`s ambitions to own a home. Does a 4%+ five year discounted rate represent a brake on the market. I don`t think so... Do any of the brokers out there know if they will be using a posted or discounted rate ?

 

[RussellWestcott]

For those of you following this thread you may want to check out this interview courtesy of Peter Kinch and CTV

Click here

 

[TheVancouverMarket]

There is also some useful info here:

http://canadianmortgagetrends.typepad.com/

 

[JimWhitelaw]

I understand the desire to cool down the true speculator buying, but is there really enough of that activity on a nation-wide basis to warrant specific changes to address it? Are there really that many speculators running up the prices on real estate across the country to create a national `housing bubble`? Doesn`t seem likely to me. The new 80% rule for investors seems like a national solution to a made-in-Toronto problem.

 

[fumbrunner]

QUOTE (RussellWestcott @ Feb 18 2010, 11:22 AM) For those of you following this thread you may want to check out this interview courtesy of Peter Kinch and CTV

Click here
I agree with Peter and it`s essentially what I have been telling people since the announcement.  The changes are all about optics.  Get rid of those darn speculators (which is a tiny part of the real estate market).  Make people qualify for 5yr fixed rates, so that  people don`t get over-extended (but allow them to still use variable rate mortgages).  Small changes related to HELOCs.  In reality, it`s a whole lot of nothing.  No changes to down payment requirements, no changes to amortization.  If they truly wanted to cool the housing markets, they would have instituted at 10% down payment requirement.  The government did not want to go there.  The real estate market is a big part of the economy, one of the few sectors not struggling.

The only ones hurt are investors in rentals, which was either an unintended consequence, or minor enough in the eyes of the government to ignore.  the 20% downpayment is clearly about optics that the government is doing something about speculators.