Lenders have started announcing their new debt servicing policies this week. One big one taking effect on April 19 is the posted qualification rate.
So far, the big banks (like TD and Scotia) seem to be applying this new posted qualification rate to both high-ratio and conventional mortgages, (despite CMHC only requiring it on insured mortgages over 80% loan-to-value).
Meanwhile, some smaller lenders have said they will not be qualifying conventional mortgages with the 5-year posted rate. Instead, they’ll measure borrowers against a lower rate–like a 3-year fixed (which is the current standard).
That gives these smaller lenders a new potential edge versus the banks. The reason being: 80% of mortgagors have at least 20% equity. Those with higher-than-average debt ratios might no longer fit at a bank that uses the 5-year posted rate to qualify variable and 1- to 4-year mortgages.
Then again, a bank may not necessarily want those borrowers. A bank may prefer to keep its guidelines consistent across the board. It’s easier that way for efficiency, risk considerations, and potentially for securitization purposes.
Last modified: April 26, 2017
Where can you see the “posted qualification rates”? Are they on the banks’ websites?
If these are in fact the types of high standards and criteria Canadian banks lived by and enforced on themselves and their borrowers in the years leading up to the current financial situation in North America (as opposed to the unbridled, reckless lending of U.S. banks), then there is no reason for any reasonable person to buy into the whole bubble notion being peddled by basement-dwelling, wishful thinking renters. The fact is that Canadian borrowers and Canadian lenders have always set much higher standards to live up to compared with their cousins to the south.
As a result, there is a slim chance we’ll even come close to seeing a fraction of the carnage we’ve been seeing in the U.S.
High standards in Canada eh?
http://www.crackshackormansion.com/
What’s your high score? I only got one crack shack wrong!
Too bad the guy who made this site doesn’t understand the words “land value.”
Too bad you don’t understand the word “bubble”.
Hey Dude,
(Sorry, couldn’t resist.)
We’ve added the qualification rate to the left column and will endeavour to update it each Wednesday when the Bank of Canada re-calculates it.
Rob
Evidently I understand “bubble” more than you understand “supply and demand!”
Bubbles can be caused by a whole lot more than lax lending standards. For example, commodities were setting record prices on both current trades and futures contracts a little over a year ago. Canada benefited from this because we have a commodity based economy. This caused people to have more discressionary income, and interest rates were really low. Therefore, many people bought houses who were never able to before. Hence: More demand, less supply= higher prices.
Commodity prices are now much lower, and the previously signed futures contracts are now almost all fulfilled. They are not projected to reach “boom” level prices again for quite some time. This is bad for Canada’s economy. People will have less discretionary income and income and interest rates will be higher. Less people will be able to buy houses, and some people who recently bought large houses with variable rate mortgages will not be able to afford payments. Hence: less demand, more supply= lower prices (i.e., market adjustment/bubble burst).
For a historical comparison, check out gold/oil prices from the late 70s through the late 90s. Then overlay this on top of housing prices.
By definition, every bubble has demand that exceeds supply.
And by definition every bubble pops.