CMHC recommended this week that the minimum down payment is increased. Evan Siddall CEO of CMHC gave a speech last week at the Bank of England’s offices. He recommended that the government take further action and increase the minimum down payment required for someone to buy a home. This recommendation was made on the heels of recent policy changes introduced by the federal government over the last month.
Sidel said. “Politicians are tempted to help first-time homebuyers enter the market, but low down payments may be part of the problem, adding to affordability pressures and macroeconomic vulnerabilities,”
By increasing the minimum Down payment the effects of low rate mortgages will be offset. The rate wars that have plagued our industry over the last couple of years thanks to unscrupulous banks who put in place restrictive mortgages and mortgage brokers who peddle substandard mortgage products to gain market share are rearing their ugly head today.
I have said it before and I will say it again large corporations and government policymakers need to stop driving while looking in the rearview mirror. The ink is still drying on the last series of changes that were made and now they are talking about making more changes that can ultimately destroy an already fragile market.
Further to the changes just mentioned CMHC is also recommending that the government put in place a loan to income limit that will restrict borrowers in the size of the loan that they would be able to get. Currently, we have in place a series of calculations that are used to determine the max that a borrower can qualify for these are called indebtment ratios or otherwise known as GDS & TDS calculations. These ratios limit the amount that a borrower can get based on their gross revenues.
Loan to income calculations has been put in place in various countries around the world. The way they work is simple if you earn an annual income of $50,000 and you get a mortgage of $150,000. In this case, you would have a ratio of 3 this means your loan is equal to 3 times your annual income. In the UK the most lenders will typically approve is 5x annual income. It remains to be seen if Canad will follow suit with these changes.
As always I am available for comment or any questions