If you have been waiting to hear what the Guideline B20 lending changes will be, the wait is over. Published today are the new guidelines which go into effect January 2018.

A brief summary of the changes are:

1. A new minimum qualifying rate, or “stress; test” for uninsured mortgages (mortgages where clients are putting 20% or more down).

• Guideline B-20 now requires mortgage clients to qualify on a minimum rate based on the greater of the five year BOC rate or the contract mortgage rate +2%.

2. Lenders are now required to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic/fluid and responsive to risk.

• This means lenders must establish and adhere to appropriate LTV ratio limits that are reflective of risk and can be updated as housing markets and the economic environment evolve.

3. Office of the Superintendent of Financial Institutions (OSFI) is placing new restrictions on lending arrangements that appear designed to circumvent loan-to-value (LTV)limits. ie Mortgage Bundling

• Lenders are prohibited from arranging mortgages with other lenders, including the combination of a mortgage and other lending products in any form that exceeds the institution’s maximum loan-to-value This applies to limits in its residential mortgage underwriting policy and any requirements established by law.

To read the announcement in full-http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/B20_dft_nr.aspx

The immediate effect will be the “stress test” for conventional mortgages, meaning those where your buyer has 20% down payment or more. Currently those clients can qualify at contract rate (the actual rate of their mortgage), effective 2018 they will have to qualify like they are paying 2% higher. As an example: In order to buy a $300,000 home today you would have to qualify to pay $1450/m (today’s rate at 3.2% for example), effective January 2018 you will have to qualify like you are going to pay $1780/m (3.2% +2%=5.2%)… essentially removing $330 worth of monthly buying power. To put it another way; if you qualified for $300,000 today, all things being equal you would qualify for about $250,000 next year. It’s significant.

Have questions, please call, text or email me anytime!

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