Jul
18

TREB President Says Affordability Not Hurt By New Rules?

I find it interesting to read the comments and analysis from TREB that the new mortgage rules are not affecting affordability. From my perspective they are affecting them by a great deal, especially the first-time buyer who powers the market. Let’s look at some numbers from my side of the deal. Using a real case with names changed, I have a single male client who works for a major Telco earning $70,000 per year. Let’s call him Otto. Otto has a decent credit score (about 695) and 5% down for a new purchase he’s doing. He leases a VW (very prudent) at $395 per month and that’s his only debt. Otto is looking at buying a home outside of Toronto for $350,000 with $2850 in taxes and $100 in heat. Using a 30-year amortization and 5-year fixed rate of 3.09% to qualify, his “ratios” are 30 and 44.

BUT if we reduce amortization then his qualifying ratios jump to 33 and 47, so in actualty under the new rules Otto can only buy a property for about $320,000 with 5% down as his numbers then are 31 and 44, and he qualifies.

$30,000 difference? That’s pretty substantial don’t you think? TREB uses “average” price and “average” incomes to illustrate its point. I understand when painting such a broad stroke one can come to the conclusion that affordability isn’t hampered by the new rules. But it goes against simple logic that lower qualifying ratios PLUS lower amortization simply means you cannot afford as much as before.

(My guess is TREB doesn’t want to illustrate this point because then more people will shop outside of Toronto).

Nonetheless the market still accepts 5% down, and still has record-low interest rates, and reduced amortization works in your favour because it forces you to borrow…

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