20 Percent More to Buy The Home You Want

Saving up for a home has always been a long term saving plan. Some of us have ambitious hopes of getting that white picket fence home and have been saving up since we started earning. For first time home buyers in Canada, you may have to extend your timeline. The federal government has implemented tighter new mortgage regulations last month and here's how it may be affecting you .

The Income Effect

Starting Oct. 17, new mortgage rules affected the housing market, and for some, has put a serious dent in their 10-year plan. Finance Minister Bill Morneau's new regulations can be summarized as "all high-ratio insured home buyers must qualify for mortgage insurance at an interest rate [that is] the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate," which is currently 4.64 percent. This is currently two percent higher than current offered rates. The intention of the new regulations, apparently, is to reduce the already accumulating household debt levels. According to Statistics Canada, the country's debt-to-income ratio hit 167.6 percent in the second quarter of 2016.
 

What It Means

While the intentions may be debt preventative in theory, new entrants into the housing market are quickly being dismayed and turned away. These new regulations have caused them to rethink what kind of home they are able to afford. For example, if looking to purchase a home in Toronto, you will now need 25 percent more income than you did before the regulation, to purchase an average house. In Vancouver, you'll need 27 percent more income. Of course, the average consumer will not be able to meet these increases and as the Finance Department predicted, home sales will begin to slow or house prices begin to fall.