New mortgage rules affect Toronto Housing

Toronto mortgage agents say the new buyer mortgage rejection rates at the big banks and other mortgage lenders has gone increased close to 22 per cent after the banking regulator introduced new rules to test home buyers who are not using mortgage insurance. 

Alternative or 3rd party lenders are seeing an increases in business as brokers increasingly direct home buyers toward borrowing alternatives that are outside the control of the  government body  OSFI; Office of the Superintendent of Financial Institutions which designed the new tougher lending rules and regulations.

The Toronto real estate market is seeing a slow down in certain price points. The condo market is still very active because of the price point.

Home or condo buyers who can not meet the new regulations are using private lenders and credit unions, which operate under direct rules since they are provincially regulated. They are required to use the new stress test, said Brian Expo, president of New Mortgages in Toronto, Ont. 

Expo who deals with brokers says rejected loan applications from the big three bank have risen by 22 per cent since the new year, when Office of the Superintendent of Financial Institutions implemented the new financial stress test for certain borrowers in the Toronto real estate market.

Private lender Advantage Asset Management in Toronto is getting new borrowers and home buyers who have very good credit ratings said Fran Leslie, vp of new residential home mortgage and new condo mortgages.

"These people are being affected by the new rules," said Leslie. "They easily would have qualified for loans at the big banks in December."

New rules for housing on Jan. 1

The new lending rules introduced on January 1 were designed to cut down on risky home and condo loans including the Toronto market place.

Anyone dealing with a mortgage lender who operates under the control of Office of the Superintendent of Financial Institutions, have to get the new home or condo buyer approved at a qualifying rate of the greater of the contractual mortgage rate plus two percentage point or the five-year benchmark rate published by the big banks even if the mortgage is uninsured. Previously they were not required to get approved at the plus two percent guideline. The rules requiring the plus two per cent over the posted bank rate already existed for buyers who were buying homes or condos with less than 20 per cent down.

Expo said Office of the Superintendent of Financial Institutions knew the the tighter rules would affect people’s ability to get financing from the big banks at their desired price point. To get loans at the higher price point people moved outside the big banks into the alternative lending market.The new rules are designed to protect the financial institutions and we have to deal with the impact that is affect the marketplace in Toronto and all across the country."

Since the new mortgage rules were introduced, both big three banks rates and the Bank of Canada of rate have rised, “causing issues for people looking for a mortgage”, said Randy Stome, public relations and communications manager for New Capital Lending Centres.

New Capital Lending Centres mortgage brokers have seen more home buyers rejected and clients by traditional bank sources and these people are now looking to alternative sources to get their mortgage in place if they want to qualify at a certain amount based on their income.

New Capital Lending Centres are submitting fifty per cent more mortgage paperwork than this time last year, Stome said."One good thing in Toronto people are moving their business to more credit unions with many including"

Various credit unions in Toronto have started to use the new rules or they have increased the number of requirements customers need to get approval for their home loans.