The COVID-19 pandemic is having an impact on all sectors of Canada’s economy, including housing. Job losses, business closures and a drop in immigration are adversely affecting Canada’s housing markets, and CMHC foresees a 9% to 18% decrease in house prices over the next 12 months. This is an extreme estimate in many experts’ eyes, but CMHC has already made its decision based on these figures.
In order to protect future homebuyers and reduce risk, CMHC is changing its underwriting policies for insured mortgages – less than a 20% down payment. Effective July 1st, 2020, the following changes will apply for new insured mortgage applications:
- Limiting the Gross Debt Servicing/Total Debt Servicing (GDS/TDS) ratios to the standard requirements of 35/42 (down from the current 39/44 ratios)
- Establishing minimum credit score of 680 for at least one borrower (rising from the current 600)
- Disqualifying non-traditional sources of down payment that increase indebtedness as equity for insurance purposes (including gifted down payment)
In addition, to further manage the risk to CMHC’s insurance business, refinancing for multi-unit mortgage insurance will be suspended except when the funds are used for repairs or reinvestment in housing. CMHC reports that consultations have begun on the repositioning of multi-unit mortgage insurance products.
“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” says Evan Siddall, CMHC’s president and CEO. “These actions will protect homebuyers, reduce government and taxpayer risk, and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”
In light of these most recent changes, it has never been more important to work with a trusted mortgage agent to help find the mortgage solution that best meet your needs.
Have questions about how these changes could affect you? Answers are a call or email away!