What Did 2015 Mean to the Mortgage World?
Happy New Year! It’s always a little bit hard to believe just how fast the old year actually passes, but here we are again, and before we move forward it is probably a great idea to take a quick look at 2015 to see how it will impact the year ahead. 2015 was the year of change...
Happy New Year! It’s always a little bit hard to believe just how fast the old year actually passes, but here we are again, and before we move forward it is probably a great idea to take a quick look at 2015 to see how it will impact the year ahead. 2015 was the year of change.
The first impact to the mortgage world has been the severe decrease in the price of oil. It is no secret that here in Alberta the economy is very reliant on the oil and gas sector. The price decrease has had a huge impact on the income of many. This translates to lenders increasing their due diligence on all applications from anyone in these fields. Mortgage lenders and insurers like CMHC require a 2-year history on all overtime and bonus income that are both very common across this type of employment. We have seen some lenders decrease the amount of overtime they will allow. Other lenders have increased their down payment requirements. While others still will not proceed without verification of increased overall savings and little to no balances on credit facilities. If you work in these fields then you should prepare yourselves for a higher level of scrutiny.
The second change with implications still not fully known was the complete change to the provincial and federal governments. During these early days it is hard to say exactly the impact will be, but given some of the current proposals on the table, it is likely. Already we have seen proposals such as a Carbon Tax, Royalty Review, and an increase to corporate taxation. Seems like we will have to wait and see how things unfold.
The third and final change was recently announced and was made by the federal government in regards to the minimum down payment on homes over $500,000. You may be wondering why the government is involved in such things and there is a really easy answer to that. All mortgages with less than 20% down have to be insured through CMHC, Genworth or CG. Through these agencies, the federal government guarantees these mortgages in case of borrower default. That means they are now financially invested in the housing market. The down payment change means that anyone purchasing must have 5% to put down on the first $500,000 and 10% on any amount over that. For example, a home worth $650,000 previously could be purchased with $32,500 down, but under the new guidelines, must have $25,000 for the first portion and an additional $15,000 for the balance, or $40,000. The rational is that anyone purchasing a home of this value should be able to put a bit more down, which helps mitigate the overall risk.
And so what does this all mean. Despite the doom and gloom reported daily in the media it is important to remember the sky is not falling. We have weathered this type of an economic downturn in Alberta before and come through just fine. Rates are still historically low, making it an ideal time for first time home buyers and investors looking to expand their rental portfolios. Homes which are priced well are still selling albeit more slowly. Builders proceeded much more cautiously after 2009, which means they are not carrying a huge inventory of homes. We are Albertan folks, we are tough, and we will get through this as well.