The Covid-19 pandemic has greatly affected Canada’s economy across the country, including the housing market. Canada Mortgage and Housing Corporation (CMHC) has forecast a 9%-18% decrease in housing prices in the next year. Due to this prediction, CMHC has reviewed and updated its underwriting policies for insured mortgages in an attempt to reduce risk and protect future home buyers, as well as taxpayers.

CMHC has announced that effective July 1, 2020, the following changes will be made to their underwriting policies, these will affect all new applicants with regards to transactional and portfolio mortgage insurance:

• Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to the standard requirements of 35/42;
• Establish a minimum credit score of 680 for at least one borrower; and
• Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.

Refinancing for multi-unit mortgages have also been suspended, aside from those where the funds are used for repairs or reinvesting purposes, in an attempt to further mitigate risk. CMHC has already begun the process of repositioning its multi-unit mortgage insurance products.

How will this affect you, as a first-time buyer?

You will need to ensure your credit is in good standing and over maintain a credit score over 680.

Evidence by one of Canada’s largest financial institutions suggests that a large portion of first time home buyers, up to 30%, currently rely on borrowed funds for their down payments. These funds will now be hard to replace and significantly harder in our current economic environment. 

The Upside

The upside is that the impact of these latest changes to the debt service ratios on mortgage requirements will be partially mitigated by lower interest rates on various credit products.

If you have any questions, comments, or concerns about CMHC’s upcoming amendments, the real estate market, the economy, or anything else, please feel free to contact me at your convenience.

JP Real Estate would like to remind you that we are more than a real estate company, we are a community and we are in this together. We look forward to speaking with you and connecting greatness!