New mortgage rules could dampen housing market, agents warn

Anna SeifriedandMatt McLennan are in the market for their first home and, the couple hopes, their last one: a place big enough to raise their child in, and close enough to downtown toavoida long commute.

Real estate agentIlia Fabbri has been showing Seifried and McLennanlistings in the $500,000 to $600,000range, a target based on the couple'scombined incomeandthe hefty downpayment they've saved up.

But new regulations imposed by the federal government mean the couplemay no longer qualify for homes at the upper end of that range,whether they believethey can afford them or not.

Finance Minister BillMorneau announced Monday thatfrom now on, all insured mortgages must undergo a "stress test" that ensures aborrower's ability to make their mortgage payments at a higher interest rate.

Effectively, that means borrowers will be tested against their ability to pay their mortgage if actual rates were as high as the big bank'sfive-year posted mortgage rates, whichthe Bank of Canada says currently average 4.64 per cent.

It may mean the difference between buying a forever home and a starter home.-Anna Seifried

That requirement was already in place for many borrowers, including so-called "high-ratio" mortgages for people with small down payments, and borrowers who borrowed money on terms under five years.

But from now on, any insured mortgages will be tested against that higher bar.

According to themortgagewebsiteRateHub.ca,a home buyerwho now qualifies for a $665,000mortgage will only be eligible for a $505,000 mortgageunder the new regulations.

For Seifried and McLennan, the change will make affording their perfect home that much more difficult.

"It may mean the difference between buying a forever home and a starter home,depending on the prices," saidSeifried.

Dampening effect on housing market

Real estate agents say the new regulations could have a dampening effect on the housing market in Ottawa,especially when it comes tostarter homes.

"I think the people this will affect the most arepeople who may have a little bit more debt,whether student loans or otherwise ...because their margins will be narrowed significantly when they are being pre-approved."

Seifried said she still hopes to find her dream home,within the lower qualifying limit.

"We remain optimistic. We are doing our due diligence and seeing lots of housesand we know that we will find the right house eventually."

Anyone who already has a mortgage, or who has already applied for mortgage insurance, is exempt from the new rules, which will formally kick in on Oct. 17.

Some Ottawa real estate agents have startedsending notices to clients advising them tobeat thedeadline and buynow.