Prospective home buyers in Victoria may have a difficult time sealing the deal at month’s end when the country’s national housing agency does away with two insurance products – a move that could spark repercussions across the buyers’ and rental markets alike.
Canada Mortgage and Housing Corporation (CMHC), Canada’s leading provider of mortgage loan insurance and mortgage-backed securities, on April 25 announced the discontinuation of its second home and self-employed without a third-party income validation products. After May 30, homeowners with one CMHC-insured mortgage will have to sell said property in order to become eligible for a second. Additionally, self-employed applicants must have two years of unaudited, independent third-party validation of their income, as opposed to stating income of year’s past to qualify.
While the Crown Corporation claims just three per cent of their business came via such products in 2013 and has no comment on what effects the change may spark, at least one local mortgage planner is willing to venture an educated guess.
Kam Brar, mortgage planner with Auxilium Mortgage Corporation in Colwood, puts forward a typical example of a young couple who has bought a new condo a few years ago when the Victoria market was at its peak.
“Now you decide to go sell that condo, however, for whatever reason – let’s say it’s not worth what you owe, or any other reasons – you can’t get out of it right now and you decide you just want to rent it and then buy the other property,” Brar says.
Your choices: either sell it, or you live in it, or you find a 20 per cent down payment for the new purchase, to avoid CMHC.
“If you’re not turning them into rentals, you’re either going to be living in it or selling. Most of these upgrades are usually condos,” Brar said. “That’s usually the stepping stone to the next property purchase. We’ll see what happens because they’re the feeder pool for the whole market. If you look at it as an eco-cycle. It starts with a small purchase and you move your way up gradually.”
Should many potential landlords decide to stay in their condos now, at a time when Victoria has a fairly high number of new condominiums recently completed, Brar says, a lack of used inventory could be quite helpful to developers at this time.
With the changes still a matter of weeks away, CMHC isn’t willing to venture a guess at the possible side effects of the change.
“Basically we want to help Canadians meet their housing needs and our insurance business activities need to contribute to the stability of the housing markets and finance systems,” said Charles Sauriol, media relations for CMHC. “This is a business decision that we made and again, it’s just looking at our products and how they fit with our core objectives.”
Brar, underlining his view that CMHC’s products were intended to enable first-time buyers, not future land barons, has his own hypotheses on the timing of the changes.
“I think they are hearing from a lot of worldwide economists that the Canadian housing market’s over valued; it’s a bubble. And they want to be seen as being proactive,” Brar says, quoting reviews made by the Office of the Superintendent of Financial Institutions following the 2008 the sub-prime meltdown.
“Sometimes you wonder if the actions that you take lead to the events that are the eventual outcomes, so if it’s a self-fulfilling prophecy, if we do all of these things will we have basically interfered with the market, that same market that will correct and we’ll say that we were right?”
rivate insurers react to CMHC’s regulation changes
Canada’s largest private residential mortgage insurers, founded in 1995, has decided not to follow suit with CMHC’s product changes. Announced last Friday, Genworth will make one adjustment, however. The maximum number of units allowable under the vacation/secondary home program will be reduced from two units to one unit. There will no changes to the business for self program.
Canada Guaranty –
The private investor group Canada Guaranty, formed in 2010 when the Ontario Teachers’ Pension Plan and National Mortgage Guaranty Holdings Inc. acquired AIG United Guaranty Mortgage Insurance Company Canada, took the same tack as Genworth in light of CMHC’s management plan. As of May 30 only properties with a maximum of one unit will be eligible under the Lifestyle Advantage mortgage product. Previously, two-unit properties were allowed.