New Mortgage rules were put in place after the worldwide economic downturn that was spurred on by the housing crisis of the last decade. The legislation was meant to protect lenders and homeowners from high-risk loans that lead to high volatility on the market. Even though the government enacted these laws to help quell markets such as Toronto and Vancouver, as it currently stands, smaller markets here in Alberta like Calgary and Edmonton have been hit the hardest. Here is what it means for our market and how the time could be right for getting a home loan.
Which news laws are having an adverse effect?
The legislation made it necessary to put a down payment of at least 10% on homes worth over 500,000. This is because the former limit made loans far too large, and this not only made them less likely to be paid back, it also meant that banking institutions were loaning out far too much and becoming unstable. The limit was set so that markets in high-value areas such as the GTA and Vancouver would be brought back down to Earth as their housing prices skyrockets; however, it turns out that markets in Calgary and Edmonton actually were affected the most.
How were they affected?
An already stagnating market was hit hard when the new legislation was enacted. 10% of new homes in Calgary and 7% of new homes in Edmonton were affected by this legislation compared to a national average of 4%. What this translates to is that housing markets in each city will not see the same growth and homes will be more difficult to purchase for people.
How does this affect borrowers or homeowners?
Since a new home will be more difficult to buy in these markets, the value of homes will go down across the board. Some forecasts have predicted a 4% drop in the average housing price in 2016 after a 5% drop in 2015. It also means that borrowers will have to settle for homes that they might not want, or have difficulty getting loans for the ones that they do. One good thing is that new buyers will be able to enter a market that has great potential. With homes selling at lower value than in recent years, it will be easier for first-time buyers to get the houses that they’ve always dreamed of.
As a private financial institution, we are not subject to all of the laws that regulate our national banking system. We help customers who are not best served by bank loans. The new legislation has hit major cities in Alberta hard, but this only means that now is a good time to buy. Expensive homes are now 7%-10% cheaper than they were two years ago. Strike while the iron is hot, and get a home loan for your dream house.