Wednesday April 7th, 2010 - Higher Rates And New Rules May Be Challenging For Home Buyers

New mortgage rules and rates are set to change the housing market. With the increase of five-year posted mortgage rates from .06 per cent to 5.85 per cent, buyers are likely to see a reduction in the mortgage size they will qualify for.

For buyers in Burnaby and the Lower Mainland, this could mean more difficulties in qualifying due to high property values. A household income of $100,000 could see a reduction in purchase power by about $40,000.

Additionally, Finance Minister Jim Flaherty’s new rules dictate that borrowers with the minimum 5 per cent down payment need to qualify for a mortgage with the five-year posted rate if they want a variable mortgage. Market participants predict curbing real estate prices.

Low mortgage rates were introduced in 2008 to stimulate the economy, but recent concerns about over-stimulating the housing market and Canadians’ record debt levels created pressure to raise rates in order to cool the economy.

With bond markets reacting to increasing government debt and inflation reports, long-term mortgage rates needed to increase. Bond markets are used by banks to raise their funds for long-term mortgages and set interest rates for loans of five years or more.

Despite the rate increase, RBC’s B.C. regional mortgage manager Kevin Lutz pointed out that two years ago, the five-year fixed rate was 7.19 per cent and prime was 5.25 per cent, showing buyers that they can still take advantage of a low rate.