As the COVID pandemic resumes, the virus continues to impact all levels of the Canadian economy, including the housing industry.
With millions of Canadians out of work, countless businesses being forced to close, and immigration down “sharply”, Canadian housing markets are taking a hit as a repercussion. As a result, the Canadian Mortgage Housing Corporation (CMHC), the country’s national housing agency, foresees there being a 9% to 18% decrease in house prices over the next 12 months.
In order to protect future home buyers and reduce any future risks, CMHC announced it’s changing its underwriting policies for insured mortgages.
Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
- Establish a minimum credit score of 680 for at least one borrower; and
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
To further manage the risk to its insurance business, and ultimately taxpayers, during this uncertain time, CMHC said it’s also suspending refinancing for multi-unit mortgage insurance. However, there is an exception: if the funds are used for repairs or reinvestment in housing. CMHC says consultations have already begun on the repositioning of its multi-unit mortgage insurance products.
“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO. “These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”
According to the CMHC, these mortgage requirement changes are all within its authorities under the National Housing Act and are in anticipation of potential house price adjustment.
“We will continue to monitor market conditions and work with our federal colleagues on potential macro-prudential policy options,” said CMHC in a statement.