Tighter Mortgage Rules Mean Rent Increases
Courtesy of Reagan Burton - Mortgage Associate
The majority of property investors are already licking their chops, anticipating tighter mortgage rules will allow them to bump up rents, suggests a new CREW poll.
Just under 60 per cent of those responding to an online survey this week answered “yes,” they will indeed raise the rent because of the new mortgage rules. That, of course, is only where the law permits, most likely with empty units and not sitting tenants.
The anticipation is based on an expected bump-up in the number of Canadians -- in particular, first-time buyers -- who'll now find themselves shut out of the housing market. Such a development would be pegged to Ottawa’s decision to limit maximum amortizations to 25 years for insured mortgages.
For first-timers in pricey markets such as Toronto and Vancouver, that may effectively block them from purchasing even starter condos, which already strain affordability.
While economists expect some price declines because of the tighter mortgage rules that may not come soon enough to encourage young Canadians to buy instead of rent.
Since the new rules were announced last week, investors have also been grappling with them, trying to decide whether they afford a net negative or benefit to landlords, already enjoying relatively low vacancy rates in most markets.
Since rental properties require 20% down, therefore not a CMHC insured mortgage, the rule will have no effect on most investors in terms of obtaining financing. The upside is that less people can afford homes therefore more renters. The downside is that it may reduce prices if the demand softens.
Recap on Jim Flaherty's new rules from last week:
1. Amortizations reduced to 25 years - Reduced amortizations mean clients will qualify for less money. This may result in people not being able to afford home ownership or having to purchase lower priced properties.
2. Refinancing limited to 80%
3. Properties purchased at over $1 million no longer eligible for mortgage insurance
4. GDS and TDS set at 39% and 44%
Courtesy of Reagan Burton