Changes to mortgage rules take effect

Changes could impact 15 per cent of Victoria area home buyers

Changes imposed by the federal government this week could have an adverse effect on people looking to purchase new homes with a high-ratio mortgage.

A buyer who qualified for a  high ratio mortgage – less than 20 per cent down – of $500,000 under the old rules will now only qualify for $400,000. Those mortgages require insurance through the Canada Mortgage and Housing Corporation.

According to the most recent statistics from the Victoria Real Estate Board, that could impact the 15.5 per cent of people buying homes who require high-ratio financing, said Mike Nugent, president of the Victoria Real Estate Board.

”It may affect just 15.5 per cent, but in my opinion, it makes it difficult for people in those circumstances,” he said.

One of the factors driving the current demand for homes is that interest rates have been declining since the 1980s, Nugent noted.

However, experts in Canada and the U.S. have been predicting those rates will rise in the next three to five years, he said.

People currently paying 2.5 per cent interest for the first five years will see that climb to 4.6 per cent after five years.

That will affect people’s ability to handle the increase in their mortgage payments, he added.

“I believe Ottawa is making the changes to safeguard against an increase in interest rates,” he said. “I would have much preferred if they staggered the increase to 4.6 per cent over a couple of years. This is difficult news for people who require high-ratio financing. ”

Nugent suggests that people looking to purchase a home that are affected by the changes talk to a realtor about widening their search radius or consider a condo or townhouse instead of a home to counter the $100,000 difference in what they qualify for after the Oct. 17 legislation.