An Insiders Perspective of The Market.
For many paying attention, today's announcement comes as no surprise. This was a fairly telegraphed announcement from O.F.S.I as they proposed revisions to their lender guidelines back in July. However given the market shift this
spring due to the Province's announcement of the "Fair Housing Plan", many believed or hoped that O.F.S.I would take a wait and see approach. Of course it never hurts to hope, however as announced this morning O.F.S.I confirmed that they are going ahead with their proposed revisions, and guess what, new regulations will be kicking in come January 1st, 2018.
Stress Test? Again? Yep that's right, more testing. Ok, so a year ago, the stress test wasn't for everyone. As per the first set of changes (October 2016) - Home buyers with less than a 20% down payment began having to qualify at the benchmark rate, currently 4.89%.
So what's O.F.S.I got up their sleeves this time? Brace yourself, because this could potentially be one of their biggest policy changes of all time.
Here's the break down:
1. ALL Mortgage Borrower's-: Regardless of their down payment and applicable to refinances will be required to qualify at the greater of their contractual rate +2% or the benchmark rate (4.89%). It is estimated that this will wipe out about anywhere from 18% - 20% purchase/borrowing power.
2. LTV (Loan To Value): Loan To Value "LTV" is defined as a percentage that describes how much of your home's value you're borrowing against. 20% down? That's 80% LTV. 35% down? That's 65% LTV. Lender's will now start looking at the real estate market in a very micro way. What does this mean? For example, one borrower lives in Mississauga while another lives in the core of the city. The recent standard has been that it was fairly common to see lenders lend to similar LTV's on comparable properties within the GTA. What to expect? If you have to live in an area in which there is a lot of inventory listed for sale and its putting downward pressure on prices, expect to borrow less.
3. Bundle? I don't think so: A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy.
To put things in context...
Pre Stress TestA couple with a household income of $100,000 with excellent credit, a 30 year amortization and an interest rate of 3.09% can currently qualify for a maximum mortgage (borrowed) amount of $764,000- roughly. To keep it simple, we are not factoring in the cost of utilities, taxes and or maintenance fees.
Post Stress Test-This same couple, using the same parameters. Excellent credit, 3.09% interest rate and a 30 year amortization can now qualify for a maximum mortgage amount of about $617,000 or 19.24% less than before.
OFSI regulations in just the last 10 years