How This New Mortgage Trend Could Affect You
The housing market is entering a new cycle due to changing interest rates. As a result, new evidence suggests that housing activity will continue to soften as the market adjusts to the rigorous rate hikes rolled out by the Central Bank of Canada (BoC).
The BoC announced that this quantitative tightening is necessary to combat inflation, which reached an alarming 8.1% in June 2022 after it started raising its benchmark rate in March.
Since then, there have been four rate hikes, with the latest one being a shocking 1% on July 13th. It has sent out a clear warning that rates will rise even further to correct the market.
Stress Test Causing More Stress
Due to the increase in the Bank of Canada's benchmark rates, commercial banks have been pushed to follow suit and increase their prime rates. It’s made it more challenging to qualify for a mortgage under Canadian stress test rules.
Currently, the qualifying rate for uninsured mortgages is either 2% above the contract rate or 5.25% (whichever is greater). To put things in perspective, Variable rate-borrowers were still qualifying at 5.25%, but it’s now shifted to around 6%, and fixed-rate borrowers are now qualifying at about 7%. As one can imagine, this cuts into borrowers' purchasing power.
Most Canadians understand that the stress test can pose one of the most significant hurdles in qualifying for a mortgage within the commercial banking space. Therefore, many Canadians cannot qualify at their commercial banks anymore.
Alternative Lending Space
With the traditional route blocked, Canadians have been forced to seek solutions from the alternative mortgage space and are impressed with the results. This avenue provides unique opportunities for brokers to help clients get into the market or leverage the equity in their homes to explore new ventures.
Due to regulatory and provincial changes aimed at stabilizing the housing market, the landscape of the Canadian mortgage market has shifted significantly. The bigger picture is that the rate increase will eventually cool the market and tame inflation.
In addition, it's a well-known fact that a housing correction presents an opportunity for home buyers. Many Canadians think it is a much-needed cool-down from the last two years that put a substantial financial burden on many new homeowners wanting to enter the market. For example, house prices have dropped $200,000 compared to the record-high average selling price in February.
Therefore, as house prices continue to fall, Canadian Tailored Mortgage Solutions (CTMS) is constantly seeking new options to tailor mortgage solutions to fit the needs of our clients.
"The good news is that there are great options available through the alternative lending space, the market will do what it does to correct itself, and borrowers shouldn't panic. The pandemic rates were simply not sustainable. These rate hikes will cool the market and return properties to their intrinsic value. I'm happy for those who capitalized on the discounted rates, but they are a thing of the past. In this new cycle, some will unfortunately lose, and some will gain," stated Mr. Steve Bryan, President and Broker of Records at Canadian Tailored Mortgage Solutions.
We’ve also seen an uptick in borrowers who never used the broker's space getting approved by CTMS agents. They loved the options they didn't know were available. So please don't lose hope until you speak to us.
Get in touch with us today!
At Canadian Tailored Mortgage Solutions, we take great pride in improving our clients' financial circumstances. Educating them about the many mortgage products currently available to ensure they make a well-informed decision is at the forefront of our work.
We place them with lenders who can facilitate an array of mortgage offerings to provide them an opportunity to graduate into the prime space as their mortgage reaches maturity.
We are equipped but not limited to finding working mortgage solutions for:
- Self-employed Canadians requiring flexibility in income qualification
- Borrowers in need of accommodating mortgage solutions due to past credit impairment
- Debt serviceability/extended ratios or larger loan amounts
- New Canadians with limited Canadian credit history
- Individuals seeking rental investment properties
- Individuals getting married/divorced and need to add/remove a partner from/to mortgage
Therefore, by offering reliable services and using our many years of experience, we will help you with all your mortgage needs. We serve clients across Brampton, Burlington, Etobicoke, GTA, Guelph, Hamilton, Mississauga, and Toronto. We also cover Windsor, York, Richmond Hill, Newmarket, Niagara, Kingston, Kitchener, Ontario, and the surrounding areas.