Impact of the New CMHC Mortgage Lending Rules on Condo Market

19 January 2011

More changes have been made by the Federal Government  to CMHC lending practices. Note that these rules do not apply to mortgages that are conventional (under 80%). The first change is to mortgage refinancing. Now existing owners can only refinance to 85% from 90% previously. This will have no impact on the selling of condos. Neither will the second change impact condo sales, whereby Home Equity Lines secured by a property will no longer be insured by CMHC. These loans were used by many for big purchases such as home renovations, investments, and second properties. The key change to the condo market is the reduction in the amortization period from 35 to 30 years. The impact is to increase monthly mortgage payments by 7.8% for the same amount borrowed at the same interest rate. If a buyer is tight to the lending ratios, it means that their income would have to increase by this same 7.8% to qualify for the same sized mortgage. What does this mean for the condo market? Certainly some buyers will be priced out of the market and will turn to renting condos – good for investors. This may actually help to increase rents which are too low for current pre-construction condos. The second result is that buyers will be forced to buy cheaper properties. That means smaller condos and for others it means buying a condo rather than a house. In summary, sales volumes will be minimally impacted, although the mix of sales may change. For pre-construction sales, this change may actually be good news! These buyers are usually 'all cash' and if they do require a mortgage, it is always conventional and hence CMHC would not be applicable. And if rents go up, that would be a bonus in this market segment.