The research arm of a high-profile condo marketing firm doesn't believe that new federal mortgage-insurance rules will hobble the Vancouver real-estate market.
In an analysis released today, rennie intelligence acknowledged that new Canada Mortgage and Housing Corporation restrictions will present challenges for homebuyers who can't put down 20 percent on a purchase.
That's because they will find it more difficult to insure their mortgage starting on July 1, when these changes take effect.
However, rennie intelligence also predicted that the new CMHC rules will have a "minimal" impact on the overall market.
"Canada Mortgage and Housing Corporation is one of three insurers of residential mortgages in Canada, the other two being private companies (Genworth and Canada Guaranty)," rennie intelligence stated. "Notably, these two insurers—who together account for approximately 25% of Canada’s mortgage default insurance market—will not be following CMHC’s lead in changing the mortgage default insurance rules on July 1st.
"In other words, some borrowers who otherwise would have been impacted by CMHC’s rule changes may be able to work around them."
CMHC, on the other hand, has predicted that home prices could fall from nine to 18 percent over the next year as a result of the COVID-19 pandemic.
Earlier this month, the RateSpy.com website suggested that the CMHC rules could reduce homebuyers' purchasing power by up to 11 percent. Shortly afterward, Genworth MI Canada announced that it won't be changing its underwriting policy.
Borrowed down payments won't count as equity
Anyone who puts down less than 20 percent on a home is required to purchase mortgage insurance to protect lenders in case they default.
Nontraditional sources of funding for a down payment—which increase indebtedness—won't be treated as equity by CMHC for the purpose of purchasing mortgage insurance.
On July 1, borrowers will need minimum credit score of 680, up from 600, to qualify for CMHC mortgage insurance. In addition, they'll need a GDS ratio higher than 35/42 (percentage of income to pay off all housing costs and debt obligations).
"These changes will directly impact some buyers (and specifically first-time buyers), including those with low credit scores, those who intend to use borrowed funds for a down payment, and those with high debt service ratios," rennie intelligence reported. "For households with a gross income of $100K, for example, the lowering of the maximum GDS could reduce their maximum loan by $70K."
According to rennie intelligence, only 16 percent of the residential portfolio of chartered banks is linked to loans that require mortgage insurance.
"It is also worth noting that in the Vancouver Region, 28% of MLS home sales over the past 12 months have had a purchase price of at least $1 million, meaning purchasers of these properties are required to have at least a 20% down payment (and therefore are not required to obtain default insurance)," rennie intelligence stated.
Moreover, rennie intelligence pointed out that only 5.8 percent of new mortgage holders had credit scores lower than 660, according to recent CMHC data.
"Finally, CMHC indicates that only 10% of borrowers with CMHC mortgage default insurance have a GDS of more than 35%."