Mortgage changes will affect local buyers

Broker says there's still time remaining for borrowers to get pre-approved

Carla Wilson, Times Colonist
Published: Friday, July 11, 2008

New mortgage rules could cut buying power and make the difference between purchasing a single-family house and a condominium, according to a Victoria mortgage broker.

Federal measures making it tougher to borrow money come into effect in mid-October. "We still have a few months for buyers to get in and get their pre-approvals," Maria Dominelli, mortgage broker with invis, said yesterday.

Mortgage amortization is being reduced to a maximum of 35 from 40 years for insured mortgage products. Anyone with less than a 20 per cent down payment must have insurance from a financial institution covered under the Bank Act.

Also expected to affect local buyers is a requirement that mortgages issued by federally regulated lenders must have a down payment of at least five per cent.

As housing affordability decreased, interest has risen in buying homes with no down payment.

Greater Victoria home prices have soared in recent years, forcing some buyers to give up on a dream of owning a single-family house and spurring construction of condominiums. But the capital region's real-estate market is showing signs of cooling, now that more properties are for sale and fewer sales are taking place.

"I think a good part of it, particularly our first-time home buyers, have been going the 40-year amortization to get qualified, to get the house, perhaps with a suite," Dominelli said.

The mindset that no money down is required to buy will have to change, she said. "While I don't think it will really have a huge impact, I think it is going to have a major shift, particularly with our younger buyers."

These younger buyers often have a good education, a good job and security with their employer. "These are the up-and-coming professionals," Dominelli said.

Being required to have a down payment could represent many thousands of dollars and mean a buyer would get a condominium rather than something with a higher price tag such as a house, or a house with a suite that could help pay down a mortgage, she said.

These new rules will not have a significant impact on the real-estate market, but could have a dampening effect, Dominelli said.

Wayne Grier, of Re/Max Camosun West Shore, does not believe the federal measures will slow down the market.

He does not expect the shorter amortization will have a big impact either. "A shortening by five years won't be a big deal."

About five to 10 per cent of buyers are probably purchasing at zero down so they can get into the market, he said. For that segment, it could mean the difference between buying or not.

"The five per cent required for down payment will be a big deal for some people," Grier said.

Tony Joe, president of the Victoria Real Estate Board, said the federal move "will definitely have some impact because we know that a lot of people definitely stretch the boundaries of their affordability as best they can in order to buy."

It's not a bad move, he said. "The government's got to make sure they do everything they can to ensure people don't get in over their heads."

The market may heat up before October for buyers pre-approved for mortgages who want to get a home under the old rules before the new measures come into effect, Joe said.