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New mortgage rules hit first-time buyers hardest

Posted on February 15, 2016

The new mortgage rules come into effect today!  And a UBC business expert says it’s pretty much only the first time buyers who are going to feel the pinch from the new rule.

This VancityBuzz piece lays out the cons:  Previous to the new rules, potential homeowners were required to put a minimum of 5% down on a mortgage; now they’re required to put 5% down on the first $500,000 and 10% for every amount after that.

The new rules are designed to slow the growth of red hot housing markets like Vancouver and Toronto, but Thomas Davidoff with UBC’s Sauder School of Business believes first-time buyers will be most affected by the changes.

“People who are really struggling to make a down payment, but were able to get a place because of low interest rates, now have to make a significantly bigger down payment,” Davidoff told Vancity Buzz.

“So to the extent that credit and credit availability has been a driving force in the market, this should be a bit of a negative for prices.”

He said people who have been living in their homes for a significant amount of time and are looking to downsize are not going to be as affected by the new rules as those looking to jump into Vancouver’s real estate market for the first time, since they have equity to play with.

“If you have fifty grand in the bank to buy a million dollar place, that’s no longer going to cut it, you need $75,000,” he said.

“That could really bite for people who have been working, saving up their pennies to buy a place – well now you’re going to have to save more for a realistically decent place in the Lower Mainland.”

Overall, though, Davidoff said he’s not opposed to the new rules, as a 95% loan-to-value loan in a market like Vancouver’s is what he calls “very risky”, nevertheless he’s not sure the changes will improve home prices in the Metro area all that much:

“It’s not out of the question that this really could hamper the market because first time buyers are typically an important part of the market – my suspicion is first time buyers these days in terms of their impact on the market are swamped by outside capital,” he said.

“But like I said, that’s an intuition – I’ll be interested to see what happens.”

Experts are predicting that Vancouver’s housing market will slow this year, but don’t expect a total housing crash. A low dollar and foreign investment inflows will keep the housing market afloat, according to a report by TD Bank, as well as an upswing in cross-province movers coming to B.C.