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Mortgage Stress Test Sidelining Young Buyers

Jackson Middleton • Aug 22, 2019

New data shows the country’s youngest buyers are being affected most by the government’s mortgage stress tests.

Mortgage originations were down 8.9% overall in Q2, while those among buyers between the ages of 18 and 25 were down 13.4% compared to last year, according to TransUnion’s latest Industry Insights Report.

This marks the fourth consecutive quarter that mortgage originations and balances were down on an annualized basis.

“The new mortgage regulations seem to be having the intended effect in cooling the overheated housing market and broadly preventing consumers from overextending themselves with mortgage debt,” said Matt Fabian, TransUnion’s director of financial services research and consulting in the release.

“However, there are signs of some potentially unintended consequences. We have started to see an uptick in co-borrowing as the means of getting a foothold on the property ladder, where multiple consumers make an application together—in effect combining the power of their salaries,” he added. “Although this is nothing new, it is now often with the help of a parent, other relative or a friend rather than just a partner or a spouse.”

Stress Test Harder on Younger Buyers

The youngest demographic of buyers is most affected by the new mortgage rules due to being at the early stages of their careers and, typically, receiving lower salaries compared to the other cohorts, making it harder to pass the stress tests.

Those with a down payment of 20% or more must qualify at the greater of the contract rate or the Bank of Canada’s benchmark rate (currently 5.19%), while uninsured mortgages are stress-tested at the greater of the benchmark rate or the contract rate plus 200 basis points.

“This limits both their ability to qualify under the mortgage stress test rules, as well as the size of mortgages they can obtain,” the report notes. “In many of the major Canadian housing markets, many younger consumers have now been effectively priced out of buying.”

Debt Levels Increasing

While mortgage debt is trending downward, overall debt held by Canadians rose 4.3% year-over-year to $1.88 trillion.

Again, millennials led the trend with their debt levels jumping 12.3% to $515.9 billion, reaching parity for the first time with the total debt held by Baby Boomers.

“This trend represents a fundamental shift in generational lending, as banks and other institutions continue to adapt and evolve their business models to provide more options and more tailored customer experience for Millennials and Gen Z,” the report noted.

Lenders Tightening Lending Limits

The report also revealed that lenders may be taking a cautious approach to new lending, given a decline in the size of new credit limits in the quarter.

The data shows a 3.6% decline in the average mortgage size (to $276,579) and a 19.7% drop in the average line of credit limit (to $42,004).

However, limits for auto loans and credit cards were higher, up 1.9% and 0.8%, respectively.

This article was written by Steve Huebl from Canadian Mortgage Trends and was originally published on August 21st.

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RRSP As A Downpayment

By DLC Canadian Mortgage Experts • 28 Dec, 2022
Did you know there’s a program that allows you to use your RRSP to help come up with your downpayment to buy a home? It’s called the Home Buyer’s Plan (or HBP for short), and it’s made possible by the government of Canada. While the program is pretty straightforward, there are a few things you need to know. Your first home (with some exceptions) To qualify, you need to be buying your first home. However, when you look into the fine print, you find that technically, you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. Another exception is for those with a disability or those helping someone with a disability. In this case, you can withdraw from an RRSP for a home purchase at any time. You have to pay back the RRSP You have 15 years to pay back the RRSP, and you start the second year after the withdrawal. While you won’t pay any tax on this particular withdrawal, it does come with some conditions. You’ll have to pay back the total amount you withdrew over 15 years. The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. Your repayments will not count as contributions as you’ve already received the tax break from those funds. Access to funds The funds you withdraw from the RRSP must have been there for at least 90 days. You can still technically withdraw the money from your RRSP and use it for your down-payment, but it won’t be tax-deductible and won’t be part of the HBP. You can access up to $35,000 individually or $70,00 per couple through the HBP. Please connect anytime if you’d like to know more about the HBP and how it could work for you as you plan your downpayment. It would be a pleasure to work with you.

Is There A Difference Between A Deposit And Downpayment

By DLC Canadian Mortgage Experts • 21 Dec, 2022
If you’re new to the home buying process, it’s easy to get confused by some of the terms used. The purpose of this article is to clear up any confusion between the deposit and downpayment. What is a deposit? The deposit is the money included with a purchase contract as a sign of good faith when you offer to purchase a property. It’s the “consideration” that helps make up the contract and binds you to the agreement. Typically, you include a certified cheque or a bank draft that your real estate brokerage holds while negotiations are finalized when you offer to purchase a property. If your offer is accepted, your deposit is held in your Realtor’s trust account. If your offer is accepted and you commit to buying the property, your deposit is transferred to the lawyer’s trust account and included in your downpayment. If you aren’t able to reach an agreement, the deposit is refunded to you. However, if you commit to buying the property and don’t complete the transaction, your deposit could be forfeit to the seller. Your deposit goes ahead of the downpayment but makes up part of the downpayment. The amount you put forward as a deposit when negotiating the terms of a purchase contract is arbitrary, meaning there is no predefined or standard amount. Instead, it’s best to discuss this with your real estate professional as your deposit can be a negotiating factor in and of itself. A larger deposit may give you a better chance of having your offer accepted in a competitive situation. It also puts you on the hook for more if something changes down the line and you cannot complete the purchase. What is a downpayment? Your downpayment refers to the initial payment you make when buying a property through mortgage financing. In Canada, the minimum downpayment amount is 5%, as lenders can only lend up to 95% of the property’s value. Securing mortgage financing with anything less than 20% down is only made possible through mortgage default insurance. You can source your downpayment from your resources, the sale of a property, an RRSP, a gift from a family member, or borrowed funds. Example scenario Let’s say that you are looking to purchase a property worth $400k. You’re planning on making a downpayment of 10% or $40k. When you make the initial offer to buy the property, you put forward $10k as a deposit your real estate brokerage holds in their trust account. If everything checks out with the home inspection and you’re satisfied with financing, you can remove all conditions. Your $10k deposit is transferred to the lawyer’s trust account, where will add the remaining $30k for the downpayment. With your $40k downpayment made, once you sign the mortgage documents and cover the legal and closing costs, the lender will forward the remaining 90% in the form of a mortgage registered to your title, and you have officially purchased the property! If you have any questions about the difference between the deposit and the downpayment or any other mortgage terms, please connect anytime. It would be a pleasure to work with you.
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