NEW! Mortgage Stress Test More Than a Challenge for Buyers
Getting a mortgage just got a little tougher for many Canadian home buyers, thanks to more stringent requirements that went into effect on October 17, 2016.
New rules, announced in early October by federal Finance Minister Bill Morneau, now require all borrowers taking out mortgages requiring Canada Mortgage and Housing Corporation insurance (borrowers with a down payment of less than 20%) to undergo a stress test.
That means that even if they’re getting a mortgage at today’s low rates, say 2.39%, all buyers who require insured mortgages will need to show that they still can afford the mortgage at the higher five-year fixed posted mortgage rate, which averages 4.64% today.
Reduced Buying Power
This makes the mortgage game much more challenging, particularly for buyers looking at properties in high-priced markets like Toronto and area because the changes drastically reduce how much house they’re able to buy.
Effects on Sellers
Aged 50-plus home sellers also may feel the impact of these changes as prospective buyers pare down their expectations and their numbers thin, leaving a buyer vacuum.
In 2017 buyers may wait to see how the new rules play out. Some may opt out of the market for a while and use the time to save a larger down payment. Others may be waiting to see if prices drift lower due to the buyer vacuum, eventually turning into a self-fulfilling prophecy.
Buyers may also be ready to modify their expectations in terms of must-have features. The new wave of purchasers may start looking at fixer-uppers again because the prices are more attractive and affordable. Sellers are being advised that buyers may be more sensitive to price and more willing to do their own upgrades and renovations.
Prepare to sell
When preparing to sell, rather than doing an all-out renovation, put wood flooring in some of the main living areas only, like the living room and dining room. Younger buyers dislike wall-to-wall carpeting. Freshening the look to generate interest without a huge cost is the best advice. This same strategy would also apply in kitchens and bathrooms. Instead of a full renovation, put in stainless steel appliances and update light fixtures. Leave complete renovations to the buyer. This strategy makes homes more affordable and attractive to prospective buyers, reducing renovation and selling stress.